Question

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

Answer 1

Answer:

Task a:

Answer: $10,720

Task b:

Answer: $536

Task c:

Answer: $2,800

Task d:

Answer:

Debit: Post retirement benefit expense ($536 + $2,800)  $3,336

Credit: Post-retirement benefit liability ($536 + $2,800) $3,336

Explanation:

Task a:

What is the accumulated post-retirement benefit obligation at the beginning of 2021?

Accumulated post-retirement benefit obligation = $67,000 × 4/25

Accumulated post-retirement benefit obligation = $10,720

Task b:

What Is Interest cost to be included in 2021 post-retirement benefit expense?

Interest cost = Accumulated post-retirement benefit obligation × 5%

Interest cost = $10,270 × 5%

Interest cost = $536

Task c:

What is service cost to be included in 2021 post-retirement benefit expense?

Ending post-retirement benefit obligation attributed service - 2021 = $70,000 × 1/25 = $2,800 = service cost.

Service cost = $2,800

Task d:

Prepare the journal entry to record the post-retirement benefit expense for 2021.

Debit: Post retirement benefit expense ($536 + $2,800)  $3,336

Credit: Post-retirement benefit liability ($536 + $2,800) $3,336

Note: Interest cost and service cost are expenses, therefore, an expense and a liability will be created.