Exercise 17-3 Postretirement benefits; determine the APBO and service cos L017-9

Question

Exercise 17-3 Postretirement benefits; determine the APBO and service cos L017-9 L017-10 Text: BE 17-4 Love Industries has an unfunded postretirement health care benefit plan. Medical care benelits are provided to employees who render 10 years service and attain age 55 whille in service. At the end of 2016, Larry Abbott is 31. He was hired by Love at age 25 (6 years agol and is expected to netire at age 64. The expected postretirement benefit obligation for Abbott at the end of 2016 is $200,000 and $216,000 at the end of 2017 Required: Calculate the accumuloted postretirement benefit obligation at the end of 2016 and 2017 and the service cost for 2016 and 2017 as pertaining to Abbott

Explanation / Answer

Attribution period spans each year of service from the employees date of hire to the employees full eligibility date which is 30 years in this case (i.e. from 26 years of age to 55 years of age of Abbott). Therefore the accumulated postretirement benefit obligation will be for 6 years at the end of 2016 of total 30 years and will be for 7 years at the end of 2017 of total 30 years.

Calculation of Accumulated postretirement benefit obligation :

At the end of 2016 = $200,000*(6/30) = $40,000

At the end of 2017 = $216,000*(7/30) = $50,400

Calculation of Service cost for the year 2016 and 2017 :

2016 = $200,000*(1/30) = $6,667

2017 = $216,000*(1/30) = $7,200

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