Question

On January 1, 2016, Flash and Dash Company adopted a healthcare plan for its retired employees. To determine eligibility for benefits, the company retroactively gives credit to the date of hire for each employee. The following information is available about the plan: Service cost $26,350 Accumulated postretirement benefit obligation (1/1/16) 141,000 Expected return on plan assets 0 Amortization of Prior service cost 9,400 Payments to retired employees during 2016 5,500 Interest rate 9% Average remaining service period of active plan participants (1/1/16) 15 years Required: 1. Compute the OPRB expense for 2016 if the company uses the average remaining service life to amortize the prior service cost. 2. Prepare all the required journal entries for 2016 if the plan is not funded.

Answer 1

STEP 1 :
Flash and Dash Company adopted a healthcare plan for its retired employees. It will compute its post retirement expenses as :
Interest cost = Accumulated post retirement benefit obligation * Interest rate
= $ 141000*9%
$                                                                                                                                                                    12,690.00
STEP 2 :
Calculate OPRB expenses
As OPRB(other post retirement benefits) is not funded, its expected return on plan assets is $0
Post retirement benefit expense
Service cost	$                                                26,350.00
Add : interest cost	$                                                12,690.00
Amortization of prior service cost	$                                                 9,400.00
Amortization of net gain	0
Less : expected return on plan assets	0
OPRB EXPENSES	$                                                48,440.00
STEP 3 : Flash and Dash Company recognises the accumulated post retirement benefit obligation on January 1, 2016 as
Date	Particulars	Debit	Credit
2016	Other comprehensive income: prior service cost	141000
	Accrued post retirement benefit cost		141000
Flash and Dash Company records the expenses as :
Date	Particulars	Debit	Credit
2016	Post retirement benefit expenses	$ 48,440.00
	Accrued post retirement benefit cost		$ 48,440.00
Flash and dash company records the payment of retirement as :
Date	Particulars	Debit	Credit
2016	Accrued Post retirement benefit cost	5500
	Cash		5500
It reduced the prior service cost from accumulated other comprehensive income. So record the prior service cost and net income as :
Date	Particulars	Debit	Credit
2016	Accrued post retirement benefit cost	9400
	Other comrehensive income: prior service cost		9400
Accrued Post retirement benefit cost is calculated as:
Accrued Post retirement benefit cost
Accumulated Post retirement benefit obligation balance on 1-1-2016	141000
Add : Expenses	$                                                48,440.00
Less : Prior service cost	-9400
Less : Payment of retirement for 2016	-5500
Accumulated Post retirement benefit obligation balance on 31-12-2016	174540
At the end of the year ,post retirement benefit obligation is calculated as ;
Post retirement benfit obligation
Accumulated post retirement benefit obligation balance on 1-1-2016	141000
Add : Service cost	26350
Add : Interest cost	$                                                12,690.00
Less : payment of retirement for 2016	-5500
Accumulated post retirement benefit obligation balance on 31-12- 2016	174540