ABSTRACT: Owens-Illinois (OI) restated its financial statements for the year 2015 due to a disagreement with the Securities and Exchange Commission (SEC) regarding how the firm accounted for unasserted claims related to asbestos litigation. Almost 60 years ago, OI sold approximately $40 million of a product that contained asbestos and has subsequently accrued almost $5 billion of liability related to those sales. From 2003 through 2015, OI had been estimating unasserted claims over a rolling three-year window, which the firm viewed as preferable because it improved the reliability of the resulting estimate that was important given the volatility of asbestos litigation. The SEC required that OI accrue unasserted claims for as far into the future as foreseeable. While the accounting change increased the estimate of the total liability for asbestos litigation, when it was allocated to individual years, this change materially increased OIs earnings for the years 2013, 2014, and 2015. Another interesting aspect of the change was that the SECs required accounting treatment resulted in OI returning to the manner in which it had originally estimated asbestos liability (pre-2003).

OIS RESTATEMENT Due to its resolution with the SEC, OI modified its approach for estimating unasserted claims and included projections for all future years. OI calculated an additional $295 million of asbestos liability at December 31, 2015 and restated the firms financial statements. While the restatement resulted in an overall increase in liabilities and expenses related to asbestos litigation, when the changes were reflected in annual fiscal periods, net income for the most recent years of 2015, 2014, and 2013 increased by a total of $431 million. This was a significant increase for these years that more than tripled reported net income. As reflected in the revised statement of stockholders equity, net income for the years before 2013 decreased by $726 million (OI 2015a). OI provided extensive disclosures about the restatement. The first risk factor addressed in Item 1A was the asbestos-related liability. The management discussion and analysis also addressed the restatement. Finally, note 12 about contingencies addressed the restatement (OI 2015a). With this change, the SEC is requiring that OI go back to its original treatment of the asbestos liability. OI first accrued for its asbestos liability in 1993 when it accrued $975 million, which was estimated to be sufficient to cover all outstanding and future asbestos claims. This estimate proved to be too low and OI accrued additional amounts in the years 1998 ($250 million), 2000 ($550 million), and 2003 ($450 million). Beginning in 2003, OI moved away from its initial approach of estimating the total liability to an annual assessment of the next few years. OI indicated that some of the reasons for this change in accounting treatment included (OI 2015a, 2015b): the volatility of asbestos litigation; the growing number of co-defendants that had declared bankruptcy, which is expected to increase OIs future liability; and issues with product identification evidence. Given what has happened with asbestos litigation, these factors seem prescient. However, the SECs decision means that it is back to the future for OIs treatment of asbestos litigation.

Question: What journal entry would OI have made to record the additional $295 million of asbestos liability?