Unemployment Compensation Taxes (CPA) The cost of unemployment compensation taxes to an employer is sometimes reduced as a result of a

“good” experience rating. A manufacturer negotiated with the federal government a contract that necessitated the construction of a specific plant and related facilities for the sole purpose of producing the goods called for in the contract. Because the goods were required to meet emergency needs of the government, it was possible that after the plant facilities were constructed, the employees hired, and work on the order begun, the contract would be cancelled. The ensuing termination of services of employees hired for this specific job would make the employer’s experience rating worse, which in turn would increase the cost of his unemployment compensation taxes. This

“possible” cost was recognized as a cost in negotiating the contract.

Describe in order of preference three alternate methods of recording in accounts and/or disclosing on the financial statements the “possible”’ cost during the course of operations of this emergency plant under the contract.

State your reasons. lop5