The Rump Organization Essay

1208 Words Apr 20th, 2014 5 Pages
MEMORANDUM

To: Dr. John J. Morris, Department of Accounting
From: Group #1 (Matt Meenen, Bailey Ochs, Allison Olive, Marit Pavek)
Date: 04/03/2014
Subject: Case 08-6, The Rump Organization

Statement of Relevant Facts:
The Rump Organization, a SEC registrant, is planning a corporate restructuring plan. On December 27, 2005 Ronald Rump, the CEO of the organization, along with the Board of Directors approved a plan to involuntarily terminate 100 of the organization’s employees. There is an option for each of the employees to sign a litigation waiver, which forfeits any right they have for legal action against Rump. In exchange for their voluntary signing of the waiver, Rump will offer each employee a lump-sum cash payment
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Alternatively, if the employee’s termination is considered voluntary a liability will be recorded when the employee leaves the company (ASC 712-10-25-1). In order to answer this question we need to establish the communication date in the case. After establishing the communication date we need to determine if all criteria presented in ASC 420-10-25-4 are satisfied. An additional issue is if the past one-time severance benefit offered to employees being terminated could be considered an enhancement to an ongoing benefit arrangement. If it is considered an enhancement, the liability would be recognized when it is probable that a future settlement will be reached (ASC 420-10-55-18).

Conclusions and Authoritative Reasoning:
Below is a summary of our conclusions and authoritative reasoning for each of the provisions:
1. We conclude that Rump should recognize the liability for the expected employee termination benefits on the communication date, upon meeting all four criteria presented in ASC 420-10-25-4 and communicated to the employees, which is December 31, 2005. We believe that the termination of the employees is involuntary. We also concluded that the benefit arrangement is not to be treated as an enhancement to an ongoing benefit arrangement.
a. Following is a discussion of the four criteria presented in ASC 420-10-25-4:
i. “Management, having the authority to approve the action,