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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On January 1, 2019, Vasby Software Company adopted a healthcare plan for its retired employees. To determine eligibility for benefits, Vasby retroactively gives credit to the date of hire for each employee. The service cost for 2019 is $8,000. The plan is not funded, and the discount rate is 10%. All employees were hired at age 28 and become eligible for full benefits at age 58. Employee C was paid $7,000 for postretirement healthcare benefits in 2019. On December 31, 2019, the accumulated postretirement benefit obligation for Employees B and C were $77,000 and $41,500, respectively. Additional information on January 1, 2019, is as follows:

Chapter 19, Problem 12P, On January 1, 2019, Vasby Software Company adopted a healthcare plan for its retired employees. To

Required:

  1. 1. Compute the OPRB expense for 2019 if Vasby uses the average remaining service life to amortize the prior service cost.
  2. 2. Prepare all the required journal entries for 2019 if the plan is not funded.

1.

To determine

Calculate the OPRB expense of Company V for the year 2019; assume that the company uses the average remaining service life to amortize the prior service cost.

Explanation

Pension plan: Pension plan is the plan devised by corporations to pay the employees an income after their retirement, in the form of pension.

Calculate the OPRB expense of Company V for the year 2019; assume that the company uses the average remaining service life to amortize the prior service cost as follows:

ParticularsAmount in ($)
Service cost8,000
Add: Interest cost on accumulated postretirement benefit obligation (1)12,900
Less: Expected return on plan assets0
Add: Amortization of any prior service cost (3)8,600
Add/Less: Amortized gain or loss0
OPRB expenses$29,500

Table (1)

Working note (1):

Calculate the interest cost on accumulated postretirement benefit obligation.

Interest cost = Projected benefit obligtion × Discount rate=$129,000×10100=$12,900

Working note (2):

Calculate the average remaining service life of each employee

2.

To determine

Prepare necessary journal entries of Company V for 2019.

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