For twenty years, Westinghouse Electric Corp. used PCBs in the manufacture of electrical capacitors at its plain

Question:

For twenty years, Westinghouse Electric Corp. used PCBs in the manufacture of electrical capacitors at its plain in Bloomington, Indiana. A federal consent decree has ordered the company to be prepared to build an incinerator in the future to destroy the PCB-contaminated materials. The decree, with which Westinghouse agrees, contains a clause stating that if Westinghouse’s net worth (balance sheet assets less balance sheet liabilities drops to $1.9 billion. the company is required to place in escrow (set aside) $325 million to ensure that funds will be available if and when the incinerator is built.

A pronouncement from the FASB required that Westinghouse, as well as other companies, change the way in which they account for certain employee retirement costs. After adopting this mandated change. Westinghouse net worth plunged to $1 .85 billion, which is below the dollar amount indicated in the consent decree. According to the agreement, therefore, Westinghouse should transfer $325 million to an escrow account Westinghouse has refused to make the payment, however, claiming that the reduction in net worth was due to a new accounting standard not in effect at the time the agreement was signed.

Required:

Discuss this issue from the perspective of the following:

(a) An executive of Westinghouse

(b) A representative of the federal government

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...