(Nonveste d Employees—A n Ethica l Dilemma ) Thinken Technology recently merged with College Electronix (CE), a computer graphics manufacturing firm. In performing a comprehensive audit of CE’s accounting system, Gerald Ott, internal audit manager for Thinken Technology, discovered that the new subsidiary did not record pension assets and liabilities, subject to GAAP.

^{Th e ne t p r esen t valu e o f CE’ s pensio n asset s wa s $15. 5 million , th e veste d benefi t obligatio n was}

^{$12. 9 million , an d th e p r ojecte d benefi t obligatio n wa s $17. 4 million . Ot t r eporte d thi s audi t findin g to}

^{Juli e Habbe , th e newl y appointe d cont r olle r o f CE . A fe w day s late r , Habb e calle d Ot t fo r hi s advic e on}

^{wha t t o do . Habb e starte d he r conversatio n b y asking , “Can’ t w e eliminat e th e negativ e incom e e f fec t of}

^{ou r pensio n dilemm a simpl y b y terminatin g th e employmen t o f nonveste d employee s befo r e th e en d of}

^{ou r fisca l year?”}

Instructions

^{How should Ott r espond to Habbe’s r emark about firing nonvested employees?}