Week 6- Case Study

Facts: Citing discontent with their increasing property tax rates, residents in the Village of East Glen voted to dissolve their village government, instead agreeing to receive similar services (formerly provided by the Village government) from the Eden County government. No consideration must be paid by (or to) the county to effect this transfer. The effects of this transfer/dissolution will be that all village assets and liabilities (cash balances, buildings, infrastructure, and accounts payable) will become property and responsibility of the county, five employees will transfer to the Eden County district offices, and two employees will be involuntarily terminated and given 3 months of severance pay. The two terminated employees were responsible for East Glen's street maintenance division, which will be discontinued.

Required: You have been asked to write a brief accounting issue memo to the Edlen County government files describing the accounting implications of the East Clen dissolution. In your memo, adress the appropriate accoutning for the transaction: Merger, Acquisition, or transfer of Operations? Also, adress how Eden County should recognize and measure the additional assets and liabilities, and describe broadly the accounting implication of the discontinuation of the street maintenance operations and the principle for recognition of the related empoyee terminations. In doing so assume that the Village of the East Glen has prepared financial statements as of the merger date. Feel free to identify other issues that should be considered, as well. In your memo, be sure to appropriately cite the authoritative guidance relevant to this issue and include excerpts from the guidance to support your analysis.

1. Should the transaction be accounted for as a merger, acquisition, or as a transfer of operations?

2. How should Eden County record the additional assets and liabilities?

3. What are the accounting implications of the disposal of street maintenance operations and related employee terminations?