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 December 27, 2005 by Rump’s board of directors and Rump’s CEO, Ronald Rump. * The corporate restructuring plan identifies 100 employees to be terminated, the job classifications and locations of each employee to be terminated, and the expected completion date of January 31, 2006. * On December 31, 2005, each affected employee was e-mailed a summary of all the plan’s terms, which included the amount of severance benefits the employee would receive upon termination, subject to signing the litigation wavier by January 31, 2006. * Rump believes it is unlikely that significant changes will be made to the plan or that the plan will be withdrawn before its execution. * The plan allows employees to leave Rump at any time, but no later than January 31, 2006. The employees must sign the waiver no later than January 31, 2006.

Identification of questions and alternatives
Should Rump recognize a liability for expected employee termination benefits as of December 31, 2005?

Conclusions and Authoritative Reasoning
Rump should recognize the liability for expected employee termination benefits as of December 31, 2005 for all 100