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One-Time Benefit Arrangement

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This memo concerns the accounting for severance payments made to terminated employees as a result of The Rump Organization (“Rump”) corporate restructuring plan. Specifically, the memo will discuss the initial recognition and measurement of the severance payments based on the requirements of Accounting Standards Codification 420 – Exit or Disposal Cost Obligations (ASC 420). The memo will also address the effects on Rump’s 2005 and 2006 financial statements and various accounting changes associated with the communication date and timing of the plan. Accounting for the One-Time Termination Benefits In accordance with the Financial Accounting Standards Board’s (FASB) ASC 420, Rump should recognize and measure the amount of one-time termination benefits at fair value on the date that the terms of the plan have been communicated to employees. Even though the plan was approved on December 27, 2005, the entity’s communication with employees on December 31, 2005 creates the obligation to provide termination benefits. The journal entry would include a debit to “Restructuring/Severance Expense” and a credit to “Liability for Termination Benefits”. The total costs recognized should be reasonably estimated and will be dependent upon how many terminated employees voluntarily sign a waiver of any right to legal action. All eligible employees must sign the waiver no later than January 31, 2006 and are allowed to leave at any time after December 31, 2005. Rump should report the effects of recognizing the termination benefits in Income from Continuing Operations before income tax in the 2005 and 2006 financial statements. In periods subsequent to the initial measurement and recognition on December 31, 2005, Rump should monitor any changes in either the timing or amount of the expected termination benefit cash flows. Changes due to the passage of time shall be

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