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The following data are for Guava Company's retiree health care plan for the current calendar year.

-What is the service cost to be included in the current year's postretirement benefit expense?

Question

Use the following to answer questions 
The following data are for Guava Company's retiree health care plan for the current calendar year.
 
-What is the service cost to be included in the current year's postretirement benefit expense?

Quizplus · Accepted Answer

The service cost represents the present value of the increase in the projected benefit obligation resulting from employee service during the current period. In this case, it is calculated as ($130,000 - $120,000) / 10 = $1,000 per year for 10 years. Therefore, the service cost for the current year is $1,000. The answer is B because the total postretirement benefit expense includes the service cost ($1,000) plus the interest cost ($2,200) minus the expected return on plan assets (-$1,020), which equals $3,180.

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