Ballooning out of control is a manufacturer of hot air balloons. Because of decreased demand for hot air balloons and challenging industry conditions, Ballooning's management is exploring ways to reduce the Company's rapidly rising compensation and benefit costs. Before choosing which cost-cutting plan to recommend to the board of directors, management would like to determine how to account for each possible action.

Required (Part A and Part B):

Part A: Use a memo to address the following research questions:

For each of the two scenarios, on the basis of the specific facts and circumstances, determine whether the action should be accounted for as a curtailment or plan amendment for pension accounting purposes.

Scenario 1

Management can amend the Company's single-employer defined benefit pension plan by eliminating the future earning of pension benefits for 85 percent of its employees (i.e., freeze its pension plan). If Float decides to freeze its current pension plan for 85 percent of its workforce, it will not offer any new pension benefits to its affected employees through another plan. Float's current pension plan is the only retirement benefit arrangement it provides to its affected employees. The plan's pension benefits are based on years of service and average salary for the last five years of the employee's service period. Employee paid on hourly or salaried, who have attained six months of service are participants in the pension plan.

Under the plan freeze, the Company will eliminate the accrual of additional pension benefits for future service. Neither will the company take future salary increases into account in computing the average salary for the last five years before retirement when determining the pension benefits earned for service before the plan freeze. The pension plan freeze, if adopted, will be effective on October 1, the beginning of Float's next fiscal year, and is expected to be approved and communicated to affected employees before Float's September 30 year-end.

Scenario 2

Ballooning's management can reduce costs by permanently laying off 1 percent of its plan-eligible workface while retaining the current pension plan. If this layoff plan is chosen, it anticipates that the board of directors would approve the workforce reductions and management would communicate its plans to the affected employees before September 30.

End of Part 1 here

Part B: Answer the following question by citing proper literature and introducing your own analysis (if necessary) as support. No memo is needed for Part B. Question in Part B is not asked in the specific context of Float but in a general context of pension accounting.

Is the following statement true or false? Why?

The timing for recognizing net loss of a pension plan curtailment is normally less timely than (i.e., behind) the timing for recognizing net gain of a pension plan curtailment.