Peyton Approved will provide health insurance to their retired employees. Regardless of short-term or long-term, these pension plans are a type of off-balance-sheet financing. The company sets aside retirement money for employees, this money is not taken out immediately, it is recorded in an accrued pension liability account. For the 60 employees, the total of the pension liability is $107,041.70. This will be debited to pension expense and credited to the accrued pension liability. For retired employee’s health insurance, I debited $43,718.91 to retired employee’s health insurance and credit it to accrued employee health insurance. Due to this liability, there are service and interest costs accrued. The service cost is additional liability created because another year has lapsed, and the employee receives another year credit for their service. Interest cost is additional liability created also because the employee is a year closer to their benefit payout.
Reference: Whalen, J.M., Jones, J.P., & Pagach, D.P. (2017). Intermediate accounting: Reporting and analysis . Boston, MA.: Cengage Learning