Question

Oregon Co.'s employees are eligible for retirement with benefits at the end of the year in which both age 60 is attained and they have completed 35 years of service. The benefits provide 15 years' reimbursement for health care services of $20,000 annually, beginning one year from the date of retirement. Ralph Young was hired at the beginning of 1985 by Oregon after turning age 22 and is expected to retire at the end of 2023 (age 60). The discount rate is 4%. The plan is unfunded. The PV of an ordinary annuity of $1 where n = 15 and i = 4% is 11.11839. The PV of $1 where n = 2 and i = 4% is 0.92456. With respect to Ralph, what is the interest cost to be included in Oregon's 2022 postretirement benefit expense, rounded to the nearest dollar?

Answer 1

Answer:

$205,592

Explanation:

Interest cost is the Present Value of this $ 20,000 annuity streams at time zero i.e. ( Year 2022

Value of annuity stream = $ 20,000 x 11.11839

Present Value of annuity streams at 2015 =$ 222,367.80

Discount Factor for 2017 = (1.04)-2 = 0.92456

Present Value at 2022= $ 222,367.80 x 0.92456

Service Cost= $ 205,592