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  • Posted By: joycehsia
  • Date Posted: 04/17/2011
  • Category: Business
  • Words: 3424
  • Pages: 14
  • Views: 1153
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To: Cowabunga , Inc. 2010 Audit Files

Cc: Loren Parker, Manager

Robert Elya, Partner

From: Cheng Huan Hsia (SID#: 18529567), Staff Auditor

Date: March 15, 2010

Subject: Accounting for second quarter (“2Q”) 2010 (“FY 10”) Cowabunga Restructuring


Cowabunga filed a Form 8-K on May 1, 2009 announcing the implementation of its restructuring plan in Q2 of fiscal 2010. The plan involved reduction in force and expenses related to termination/cessation of use of facilities under operating and/or consolidated leases for 50 sites.

Cowabunga recorded $19 million of restructuring charges related to one-time termination benefits granted to the severed employees which was accrued in May 2009. $15 million was paid in Q2 of fiscal 2010. $4 million remained accrued as of September 30, 2009 and was expected to be paid in Q4 of fiscal 2010.

The Company provided the severed employees salaries during the notice period despite non rendition of work. The Company treated such salary payments as part of one-time benefit arrangement and included in the restructuring expense, except the salary payments for the first pay period after notice of termination ending on May 31, 2009 when the employees were required to work up to that date.

The termination/cessation of use of the 50 sites under operating leases represented a total cost of $9.3M. Certain long-lived assets (primarily leasehold improvements) in these locations were determined by the Company to be impaired, thus resulting in impairment charges of $1.7 million, which were included in the Company’s restructuring expense. Most of the facilities were vacated on June 15, 2009 while some in Q3 and Q4 of fiscal 2010 and Q1 of fiscal 2011. The Company recorded $10 million of contract termination and other costs for vacated facilities under operational/consolidated leases, ...


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