Question

Lorin Management Services has an unfunded postretirement benefit plan. On December 31, 2021, the following data were available concerning changes in the plan's accumulated postretirement benefit obligation with respect to one of Lorin's employees:

APBO at the beginning of 2021.........................$16,364
Interest cost: ($16,364 × 10%)..............................1,636
Service cost: ($44,000 × 1/22) ..............................2,000
Portion of EPBO attributed to 2021
APBO at the end of 2021...............................$20,000

Required:
1. Over how many years is the expected postretirement benefit obligation being expensed (attribution period)?
2. What is the expected postretirement benefit obligation at the end of 2021?
3. When was the employee hired by Lorin?
4. What is the expected postretirement benefit obligation at the beginning of 2021?

Answer 1

1) 22 years

2) $44,000

3) 10 years

4) $40,000

Step-by-step explanation:

EPBO: Expected postretirement benefit obligation

APBO: Accumulated postretirement benefit obligation

1) $44,00 is referring to the expected post-retirement benefit obligation. Therefore, the expected number of years is 22 years.

2) The expected postretirement benefit obligation to be included at the end of 2021 is $44,000.

3) To determine the year employee was hired by Lorin:

(EPBO × fraction attributed to service to date) = APBO

$44,000 × (X/22) = $20,000

(X/22) = $20,000/$44,000

X = ($20,000/$44,000)× 22

X = 10 years.

The employee is therefore hired 10 years before 2021. The year hired is therefore 10 years.

4) EPBO beginning × Interest multiple = EPBO end

X×1.10 = $44,000

X = $40,000

Therefore, the expected postretirement benefit obligation at the beginning of 2021 is $40,000.