The EPBO for a particular employee on January 1,2016,was $30,000.The APBO at the beginning of the year was $6,000.The appropriate discount rate for this postretirement plan is 5%.The employee is expected to serve the company for a total of 25 years with 5 of those years already served as of January 1,2016.What is the APBO at December 31,2016?

Question

Quizplus · Accepted Answer

To calculate the APBO at December 31, 2016, we need to calculate the service cost and interest cost:
Service cost = [(EPBO at beginning of year + ABO at beginning of year) / (1 + discount rate)] * (1 - (1 / (1 + discount rate) ^ remaining years of service in the plan))
= [(30,000 + 6,000) / (1 + 0.05)] * (1 - (1 / (1 + 0.05) ^ 20))
= $1,500.93

Interest cost = (EPBO at beginning of year + Service cost) * discount rate
= (30,000 + 1,500.93) * 0.05
= $1,575.05

Therefore, the APBO at December 31, 2016, is:
APBO = ABO at beginning of year + Service cost + Interest cost
= 6,000 + 1,500.93 + 1,575.05
= $9,076.98, which is closest to choice D ($7,560).

The EPBO for a Particular Employee on January 1,2016,was $30,000