Question

The following data are available pertaining to Household Appliance Company's retiree health care plan for 2021:

Number of employees covered		3
Years employed as of January 1, 2021		2	[each]
Attribution period		25	years
Expected postretirement benefit obligation, Jan. 1	$	61,000
Expected postretirement benefit obligation, Dec. 31	$	64,050
Interest rate		5	%
Funding		none

Required:
1. What is the accumulated postretirement benefit obligation at the beginning of 2021?
2. What is interest cost to be included in 2021 postretirement benefit expense?
3. What is service cost to be included in 2021 postretirement benefit expense?
4. Prepare the journal entry to record the postretirement benefit expense for 2021.

What is the accumulated postretirement benefit obligation at the beginning of 2021? What is interest cost and service cost to be included in 2021 postretirement benefit expense?

	1. Accumulated postretirement benefit obligation 2. Interest cost 3. Service cost

Prepare the journal entry to record the postretirement benefit expense for 2021. (If no entry is required for a particular event, select "No journal entry required" in the first account field.)

Journal entry worksheet

• Record the postretirement benefit expense.

Note: Enter debits before credits.

	Event General Journal Debit Credit 1

Answer 1

ANSWER

	1)
	Accumulated postretirement benefit obligation        = Expected Beginning PBO x Years employed / Attribution period        =   $ 61,000x 2 /25        =     $ 4,880
	Accumulated postretirement benefit obligation        =     $ 4,880
	2)
	Interest cost            = Accumulated postretirement benefit obligation x Interest rate            =    $ 4,880 x 5%            =     $ 244
	Interest cost =     $ 244
	3)
	Service cost             = Expected Ending PBO x 1 / Attribution period             =   $ 64,050 x 1 / 25             =    $ 2,562
	Service cost   =    $ 2,562
Date	Accounts Titles and Explanation	Debit	Credit
2021	Postretirement benefit Expense ( $ 244+ $ 2,562)	$ 2,806
	Postretirement benefit liability / APBO		$ 2,806
	(To record the Postretirement benefit Expense )

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