Case - BACK TO THE FUTURE (OR HOW A PRODUCT LAST SOLD ALMOST 60 YEARS AGO RESULTED IN A RESTATEMENT OF CURRENT FINANCIAL STATEMENTS)
QUESTIONS -
1. What journal entry would OI have made to record the additional million of asbestos liability? You can ignore income tax effects.
2. Briefly summarize the effect of the restatement on the following financial statements. What accounts were affected? By how much? What other disclosures were impacted?
Note 1 in the restated 2015 10-K describes the changes.
a. The income statement.
b. The balance sheet.
c. The statement of cash flows.
d. The statement of share owners' equity.
3. Explain why OI's treatment resulted in an increase to the earnings for 2015, 2014, and 2013.
4. Based on OI's disclosures in the 10-K prior to restatement, was it clear that the firm was using a three-year period to estimate asbestos litigation? Be sure to explain your response.
5. The discussion between the SEC and OI was extensive and interesting. Appendix A shows all of the correspondence between the two and links to the letters. The following questions are based on those letters and the information in the case.
a. Briefly summarize OI's justification of its treatment of the unasserted asbestos liability. What are the pros and cons of OI's original treatment of the asbestos liability?
b. Briefly summarize the SEC's position regarding the treatment of the unasserted asbestos liability. What are the pros and cons of the SEC's approach?
c. Which approach do you find preferable and why? You can choose either OI or the SEC but your analysis needs to be based on something other than the SEC prevailed or OI did not.
Answer in 3 pages.
Attachment:- Case.rar