Are Those Postretirement Benefits Really Accruable?
George Logan, controller of Dyatine, Inc., has just finished reading a Wall Street Journal article about accounting for postretirement health costs. Dyatine has informally agreed to pay the medical costs of its retirees and their spouses for as long as they live. Because the company has a young workforce, very little has been paid under this program. Last year, an analysis of the potential liability indicated that there would not be significant risk of payment for at least 10 years. No liability for future benefits has been accrued on Dyatine’s books. According to the article, however, this is not allowed under FASB Statement No.106. George has always believed that Dyatine was being generous with its employees and that if economic circumstances changed, the plan easily could be altered or terminated. George calls his CPA, Debra Adams, to ask her how she feels about the FASB standard. He is surprised to learn that Debra is very supportive of it. He asks for reasons, and Debra, in turn, asks George to support his position. Prepare a summary of the pros and cons surrounding the implementation of FASB Statement No. 106.