The following information is for the Dermer Company’s OPEB plan, which it adopted on January 1, 2007:

Service cost, 2007 .................$100,000

Interest cost, 2007 .................20,000

Unrecognized prior service cost, 1/1/07 ........300,000

Benefits paid to employees, 2007 ...........18,000

Pretax accounting income and taxable income

for 2007 before any deductions for OPEB costs .......500,000

Average remaining service period ...........15 years

Enacted tax rate for 2007 ...............30%

Enacted tax rate for 2008 and beyond ..........35%

Any deferred tax assets are more likely than not to be realized

Required

1. a. Prepare the journal entries to record the OPEB expense and payments for 2007.

b. Prepare the income tax journal entry for 2007.

2. a. Assume instead that Dermer had an existing OPEB plan on January 1, 1996, and that the $300,000 was the accumulated postretirement benefit obligation at the date of adoption of FASB Statement No. 106, instead of the unrecognized prior service cost. Prepare the journal entries to record the OPEB expense and payments for 2007 if the company uses the maximum period for the amortization of the transition liability and adopted the Statement on January 1, 1996.

b. Prepare the income tax journal entry for 2007.

c. What is the balance of the deferred tax asset at December 31, 2007, if it is assumed that in each year since 1996 pretax accounting income and taxable income before any deductions for OPEB costs have been $500,000? Also assume that each year, the OPEB expense and payments were the same as in 2007.

3. a. Assume instead that the $300,000 accumulated postretirement benefit obligation was recognized as a cumulative effect. Prepare the journal entries to record the activities related to the OPEB for 2007 if the Statement was adopted on January 1, 1996.

b. Prepare the income tax journal entry for 2007.

c. What is the balance of the deferred tax asset at December 31, 2007, if it is assumed that in each year since 1996 pretax accounting income and taxable income before any deductions for OPEB costs have been $500,000? Also assume that each year the OPEB expense (before including the cumulative effect adjustment) and payments were the same as in 2007.