Compute the tax savings related to the charge

Reference no: EM131427466

Pharmaceutical manufacturer Eli Lilly announced in the third quarter of 2009 that it was taking a $425 million restructuring charge due to the sale of its Tippecanoe Laboratories unit. Of the total expense, the company indicated that $364 million was related to "non-cash" asset impairment charges, with $61 million coming from severance packages for certain Tippecanoe employees. The third quarter 2009 statement of cash flows (operating section) contains a line item added back to net income for "other, net" in the amount of $364 million.

REQUIRED:

a. Provide the entry made by Lilly to record the charge.

b. Explain why the statement of cash flow contained the $364 million entry.

c. Assume Lilly's tax rate for 2009 was 26 percent. Compute the tax savings related to the charge.

Reference no: EM131427466

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