Question

Mueller Company estimates that it is unlikely that a particular executive will achieve a specific performance target. Mueller already recognized compensation expense related to this performance plan. Mueller must the related expense.

Answer 1

Answer:

Reverse the related expense.

Explanation:

In this scenario Muller has already realised the compensation expense for achievement of the particular target. In accrual accounting only the expenses that we have already incurred or are certainly going to incur will be recognised and recorded.

Muller has concluded that the executive will not meet the target and therefore will not the eligible for the compensation. Muller should reverse the related expense as it is unlikely it will incur it.

Answer 2

Answer:

reverse

Explanation:

Unlike regular employees, executives are paid on different compensation components, e.g. salary, annual incentives, long-term incentives, benefits, severance agreements, etc.

Usually only the executive's salary is guaranteed, the other components depend on their performance. If their performance isn't satisfactory or didn't meet the expectations, then the company can decide not to pay it. E.g. a lot of executives brag that their salary is only $1 a year, but their compensation package totals $50 million. Of course that pay is based on performance.

In this case, since Mueller's executive failed to achieve his/her performance target, then the company can decide not to pay their compensation package. Since the compensation package was already recognized as a liability, this must be adjusted by reversing the entry.