Reference no: EM131792017

How a Product Last Sold Almost 60 Years Ago Resulted in a Current Financial Statement Restatement

1. What journal entry would OI have made to record the additional $285 million of asbestos liability? You can ignore income tax effects.

2. Explain why OI's treatment resulted in an increase to the earnings for 2015, 2014, and 2013.

3. 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?

4. 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 stockholders' equity.

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. What are the pros and cons to OI's original treatment of the asbestos liability?

b. 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.

6. Appendix B contains additional information about the number of asbestos cases OI has dealt with over the eleven-year period ending in 2015. How is OI's experience with asbestos litigation similar to Garlock's? How is it different?