Canandaigua, Cayuga & Sons is a hedge fund that gives the same $5,000 bonus to each high-performing employee every winter. CC&S has no legal obligation to give these bonuses. CC&S is not required to record a liability to its employees for these bonuses.

Question

Quizplus · Accepted Answer

Even though CC&S has no legal obligation to give these bonuses, if the company has established a pattern of giving bonuses annually, it creates a constructive obligation. Therefore, CC&S would need to record a liability for the bonuses once the employees have met the performance conditions, typically at the end of the year, before the bonuses are actually paid.

Canandaigua, Cayuga & Sons Is a Hedge Fund That Gives