Question

On January 1, 2016, Desoto Industries' accumulated postretirement benefit obligation was $75 million. Retiree benefits of $9 million were paid at the end of 2016. Service cost for 2016 is $21 million.

Estimates and assumptions regarding future health care costs were revised in 2016, causing the actuary to revise downward the estimate of the APBO by $2 million. The actuary's discount rate is 8%. There were no other pertinent account balances at the end of 2016.

What is the accumulated postretirement benefit obligation at December 31, 2016?

A) $91 million
B) $93 million
C) $100 million
D) $102 million

Answer 1

The accumulated postretirement benefit obligation (APBO) at December 31, 2016 is $85 million.

Step-by-step explanation:

The accumulated postretirement benefit obligation (APBO) at December 31, 2016 can be calculated by considering the changes in the obligation during the year. The APBO at the beginning of the year was $75 million. The retiree benefits paid during the year were $9 million. The service cost for the year was $21 million. The actuary revised the estimate of the APBO downward by $2 million.

To calculate the APBO at the end of the year, we need to subtract the benefits paid and add the service cost and the downward revision in the estimate. Therefore, the APBO at December 31, 2016 is: $75 million - $9 million + $21 million - $2 million = $85 million.