I need some help answering the highlighted question. I need to make the required
ID: 2426948 • Letter: I
Question
I need some help answering the highlighted question. I need to make the required journal entries and I need to find the guidance to support my conclusions. Ask if you have any questions, and I will add anything I come up with as I continue working as well. Thanks!
Prickly Pear Co. (Prickly Pear or "the Company") is a U.S. subsidiary of a Polish entity that prepares its financial statements in accordance with (1) U.S. GAAP for reporting to its U.S.-based lender and (2) IFRS for reporting to its parent. Prickly Pear is restructuring a business line. As part of the restructuring, the Company is considering the relocation of a manufacturing operation from its present location to a new facility in a different geographic area. The relocation plan would include terminating certain employees Prickly Pear has taken the following actions 1. On December 27, 2015, Prickly Pear management communicated the main features of a one-time, nonvoluntary termination plan to its employees. The communication to the employees is included as Appendix A. Receipt of this one-time termination benefit is contingent on employees' continued service through the date Prickly Pear ceases production and closes the facility. The Company estimates that the one-time termination benefit is $2.5 million. In addition, Prickly Pear has a historical practice of providing two weeks' severance to individual employees upon nonvoluntary termination. The Company estimates that the cost of two weeks' severance for affected employees is $500,000. Finally, in accordance with his employment agreement, the facility manager will receive an additional lump-sum benefit of $50,000 upon closure of the facility. Given the insignificant time between the date of the communication and the date the employees will be terminated, the Company is assuming that fair value of the costs listed above equals the estimated amounts. 2. Prickly Pear will incur a relocation cost of $500,000 and staff training cost of $1.5 million. Further, the Company has entered into irrevocable contracts with certain other relevant parties to affect the restructuring plan over the following 18 months. 3. On December 29, 2015, Prickly Pear issued a press release announcing its intentions to terminate the lease of its present facility, incurring an early termination fee in addition to its normal rental payments through the date of termination. The press release is included as Appendix B. Assume the terms of the lease are such that Prickly Pear accounts for the lease as an operating lease. Further, the lease agreement stipulates that written notice in the form of a letter or e-mail from Prickly Pear directly to the lessor is required for early termination. Required: 1. How should Prickly Pear account for the above in its U.S. GAAP financial statements as of and for the year ended December 31, 2015? How should Prickly Pear account for the above in its IFRS financial statements as of and for the year ended December 31, 2015? 2.Explanation / Answer
Please provide Appendix A for understanding of company policy and procedures applicable.
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