Question

prince distribution incorporated has an unfunded postretirement benefit plan. medical care and life insurance benefits are provided to employees who render 10 years service and attain age 55 while in service. at the end of 2024, jim lukawitz is 31. he was hired by prince at age 23 (8 years ago) and is expected to retire at age 60. the expected postretirement benefit obligation for lukawitz at the end of 2024 is $38,000 and $43,000 at the end of 2025. calculate the accumulated postretirement benefit obligation at the end of 2024 and 2025 and the service cost for 2024 and 2025, as pertaining to lukawitz. note: enter your answers in whole dollar amount. round your final answers to the nearest whole dollar.

Answer 1

The accumulated postretirement benefit obligation for Jim Lukawitz at the end of 2024 is $38,000 and increases to $43,000 at the end of 2025. The service cost for the year 2025 is calculated as the difference between the APBO of these two years, which is $5,000.

Step-by-step explanation:

The question relates to the calculation of the accumulated postretirement benefit obligation (APBO) and the service cost for an employee, Jim Lukawitz, working at Prince Distribution Incorporated. The APBO represents the present value of future benefits that have been earned by employees up to a given point in time. Based on the provided information, at the end of 2024, Jim's APBO is $38,000, and at the end of 2025, it is $43,000.

The service cost represents the portion of the APBO that is attributed to the current year of service. To calculate the service cost for 2024 and 2025, it can be assumed that the increase in APBO from the end of 2024 to the end of 2025 is due to the service cost for 2025 since Jim is continuing to render service. Therefore, the service cost for 2025 would be the difference in APBO from 2024 to 2025, which is $43,000 - $38,000 = $5,000. Since we are not provided with the APBO for the end of 2023, we cannot accurately calculate the service cost for 2024.