Nonvested Employees-An Ethical Dilemma) Cardinal Technology recently merged with College Electronix, a computer graphics manufacturing firm.

Nonvested Employees-An Ethical Dilemma) Cardinal Technology recently merged with College Electronix, a computer graphics manufacturing firm. In performing a comprehensive audit of CE’s accounting system, Richard Nye, internal audit manager for Cardinal Technology, discovered that the new subsidiary did not capitalize pension assets and liabilities, subject to the requirements of FASB Statement No. 87. The net present value of CE’s pension assets was $15.5 million, the vested benefit obligation was $12.9 million, and the projected benefit obligation was $17.4 million. Nye reported this audit finding to Renée Selma, the newly appointed controller of CE. A few days later Selma called Nye for his advice on what to do. Selma started her conversation by asking, “Can’t we eliminate the negative income effect of our pension dilemma simply by terminating the employment of nonvested employees before the end of our fiscal year?InstructionsHow should Nye respond to Selma’s remark about firing nonvested employees?