Question

The following data are available pertaining to Firewall Corporation's retiree health plan for 2021: Number of employees covered 4 Years employed as of January 1, 2021 5 (each) Attribution period 20 years EPBO, January 1 $100,000 EPBO, December 31 $106,000 Interest rate 6% Funding none Required: 1. What is the APBO at the beginning of 2021?

Answer 1

Answer:

1.$25,000

2. $1,500

3. $5,300

4.Dr Post-retirement benefit expense 6,800

Cr Post-retirement benefit liability 6,800

Explanation:

1) Calculation for What is the APBO at the beginning of 2021

APBO at the beginning of 2021= 100,000 x 5/20 APBO at the beginning of 2021= 25,000

2) Calculation for What is the interest cost for 2021

Interest cost for 2021=25,000 x 6%

Interest cost for 2021 = 1,500

3) Calculation for What is the service cost for 2021

Service cost for 2021=106,000 x 1/20

Service cost for 2021 = 5,300

4) Preparation of the journal entry to record the post-retirement benefit expense for 2021

Dr Post-retirement benefit expense 6,800

(1,500 + 5,300)

Cr Post-retirement benefit liability 6,800