The January 25, 2002, edition of the Wall Street Journal contained an article by Schad Terhune entitled

“Georgia Pacific Says Asbestos Charge Will Result in Fourth Quarter Net Loss.” (Subscribers to Business Extra can access the article at that site.)

Instructions Read the article and answer the following questions.

(a) Under what conditions does GAAP require firms to take charges for “anticipated claims”? Based on the information in the article, does it appear that Georgia-Pacific (GP) meets those conditions? Why or why not?

(b) Prepare the journal entry to record GP’s $221 million charge. How would it be reported in the financial statements?

(c) Estimated losses must be based on a “reasonable” estimate. How did GP arrive at its estimate? Do you think this process would result in a reasonable estimate? Why or why not?