Expert: Ed McFarland - 9/9/2004

Question
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Followup To
Question -
Let's say you have a deferred comp plan that has $100,000 in it invested in a mutual fund. At the end of the year the fund is now worth $110,000. I realize you book the $10,000 to a valuation allowance and increase the deferred comp liability account, but do you also make an entry to compensation expense for the $10,000? If so, what's the other side of the entry?
thanks.
Answer -
Brad,

Why the need for comp expense entry?

I see the balance sheet entry because as of the end of the period, that's what the account was worth, though the day after it could lose 20k.

Until there are distributions, I don't see why you need another entry.

I'm assuming that the fund grew 10%. If it's contributions, then it is out of payroll.

Our outside CPA firm is saying that we need a compensation expense entry, but that doesn't seem right to me either. Do you have any literature that backs up your opinion that I could give to them?


Answer
Brad,

When you asked the CPA what the other side of the entry was, what did he say?

He's got to give you an answer, otherwise we're stuck trying to prove a negative. Your response to him when he says you need the expense entry is where is the other side? He's going to have give you a place for him to sign off on the the financials.

Given this is a valuation question, then should book every gain or loss which each day's NAV of the fund? I don't think so.

Good luck.