Question

Jaybird Company has an accumulated postretirement benefit obligation (prior service cost) of $400,000 at the beginning of the year, and the average remaining service life of its employees is 25 years. The service cost for the year is $10,000. Jaybird uses a discount rate of 10%. Given this information, Jaybird's postretirement benefit expense for the current year is_________

Answer 1

The postretirement benefit expense for the current year is $50,000.

Step-by-step explanation:

To calculate Jaybird Company's postretirement benefit expense for the current year, we need to consider the service cost and the interest cost. The service cost is the cost of newly earned benefits, which is $10,000. The interest cost is the increase in the benefit obligation due to the passage of time, which is calculated as the beginning obligation multiplied by the discount rate. In this case, the interest cost is $400,000 * 0.10 = $40,000.

Therefore, the postretirement benefit expense for the current year is the sum of the service cost and the interest cost, which is $10,000 + $40,000 = $50,000.