MEMORANDUM

To: Dr. John Morris, Department of Accounting
From: Group # 2 (Cong Ye, Cory Kowalski, Yajing Wu)
Date: 4/5/12
Subject: Acctg 642: Case 08-6, The Rump Organization

Statement of Facts
The Rump Organization (“Rump”), an SEC registrant, is a commercial real estate company that purchases and constructs commercial property. Under the company’s restructuring plan, Rump’s CEO, Ronald Rump, and Rump’s board of directors approve a plan to terminate 100 of Rump’s employees. Under the plan, each terminated employee is to receive a lump-sum cash payment equal to one month’s salary but only if the employee voluntarily signs a waiver of any right against Rump. The following additional facts are given: * The plan was approved on …show more content…

In addition, the “communication date” is December 31, 2005 at which each affected employee was e-mailed a summary of all the plan’s terms. d. ASC 420-10-25-8 states that “if employees are not required to render service until they are terminated in order to receive the termination benefits (that is, if employees are entitled to receive the termination benefits regardless of when they leave) or if employees will not be retained to render service beyond the minimum retention period, a liability for the termination benefits shall be recognized at the communication date.” e. ASC 420-10-25-5 states that “an entity’s communication of a promise to provide one-time employee termination benefits is a promise that creates an obligation at the communication date to provide the termination benefits if employees are terminated.” f. In our case, employees are entitled to receive the termination benefits regardless of when they leave, prior to January 31, 2006. Therefore, Rump should recognize a liability for the expected employee termination benefits as of December 31, 2005 for all 100 employees to be terminated. g. ASC 420-10-40-1 states that “if an event or circumstance occurs that discharges or removes an entity’s responsibility to settle a liability for a cost associated with an exit or disposal activity