The annual report of the Jolly Gold Giant, an international food processing and food service firm, included a liability for accrued restructuring costs of $179.3 million. Footnotes contain the following explanation:

In 1999, restructuring charges of $88.3 million on a pre-tax basis were reflected in operating income to facilitate the consolidation of functions, staff reductions, organizational reform, and plant modernization and closures.

In 2000, restructuring charges of $192.3 million on a pre-tax basis were reflected in operating income. The major components of the restructuring plan related to employee severance and relocation costs ($99 million) and facilities consolidation and closure costs ($73 million). Upon completion of all the projects in 2002, the total headcount reduction will be achieved.

Required

a. Why do firms accrue restructuring costs before such costs are actually incurred? Do such costs satisfy the definition of liabilities that was presented in Chapter 3, “The Balance Sheet,”of this text?

b. Based on the footnote information, Jolly Gold Giant has recognized restructuring costs of $280.6 million ($88.3 in 1999 plus $192.3 in 2000 equals

$280.6). How will these charges affect the amounts of income reported by the firm in future years? How would these charges influence your comparison of the firm’s profit trend beyond 2000?