Question

On January 1, 2019, Ollie and Arrow Company adopted a health care plan for its retired employees. To determine eligibility for benefits, the company retroactively gives credit to the date of hire for each employee. The following information is available about the plan:Service Cost$40,000Accumulated postretirement benefit obligation, 1/19$125,000Expected return on plan assets$0Amortization of prior service cost$15,000Payments to retired employees during 2019$10,000Interest rate8%Average remaining service period of active Plan participants10 yearsThe OPRB expense for 2019 if the company uses the average remaining service life to amortize the prior service cost is_________

Answer 1

The OPRB expense for 2019 for Ollie and Arrow Company is calculated by adding Service Cost, Interest Cost, and Amortization of Prior Service Cost, then subtracting Expected Return on Plan Assets and Payments to Retirees. The final OPRB expense is determined to be $41,500.

Step-by-step explanation:

To calculate the OPRB (Other Post-Retirement Benefits) expense for 2019 for Ollie and Arrow Company, the following components need to be considered: Service Cost, Interest Cost on the Accumulated Postretirement Benefit Obligation, Amortization of Prior Service Cost, and payments to retired employees. The formula for OPRB expense is:

• Service Cost + Interest Cost + Amortization of Prior Service Cost – Expected Return on Plan Assets – Payments to Retirees = OPRB Expense

The Interest Cost can be calculated by multiplying the Accumulated Postretirement Benefit Obligation at the beginning of the year by the interest rate:

Interest Cost = $125,000 x 8% = $10,000

Now, the company can amortize the Prior Service Cost over the average remaining service period of the active plan participants.

Amortization of Prior Service Cost = $15,000 / 10 years = $1,500 per year

The Expected Return on Plan Assets is $0 as per the provided information.

Hence, the OPRB expense for 2019 is calculated as follows:

$40,000 (Service Cost) + $10,000 (Interest Cost) + $1,500 (Amortization of Prior Service Cost) – $0 (Expected Return on Plan Assets) – $10,000 (Payments to Retirees) = $41,500

So, the OPRB expense for 2019 is $41,500.

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