Analyzing and Interpreting Restructuring Costs and Effects Hewlett-Packard, Inc. reports the following footnote disclosure (excerpted) in its 2015 10-K relating to its 2012 restructuring program.

• Fiscal 2015 Restructure Plan In connection with the Separation, on September 14, 2015, HP's Board of Directors approved a cost saving and investment proposal which includes a restructuring plan (the "2015 Plan") which will be implemented through fiscal 2018. As part of the 2015 Plan, HP expeects up to approximately 33,300 employees to exit the company by the end of 2018. These workforce reductions are primarily associated with the ES segment. The changes to the workforce will vary by country, based on local legal requirements and consultations with employee works councils and other employee representatives, as appropriate. HP estimates that it will incur aggregate pre-tax charges through fiscal 2018 of approximately $2.9 billion in connection with the 2015 Plan, of which the estimated cost for HP Inc. is approximately $280 million. Total estimated charges as a result of workforce reductions are approximately $2.4 billion and total estimated charges for real estate consolidation are approximately $506 million.
• Fiscal 2012 Restructuring Plan On May 23, 2012, HP adopted a multi-year restructuring plan (the "2012 Plan") designed to simplify business processes, accelerate innocation and deliever better results for customers, employees and stockholders. As of October 31, 2015 HP eliminated 55,800 positions in connection with the 2012 Plan, with a portion of those employees exiting the company as part of voluntary enhanced early retirement ("EER") programs in the U.S. and in certain other countries. HP recognized $5.5 billion in total aggregate charges in connection with the 2012 Plan, with $4.9 billion related to workfoce reductions, including the EER programs, and $589 million related to infastructure, including data center and real estate consolidation and other items. The severance and infrastured related cash payments associated with the 2012 Plan are expected to be paid out through fiscal 2021. As of October 31, 2015, the 2012 Plan is considered completed. HP does not expect any additional charges to this plan.
• Other Plans Restructuring plans initiated by HP in fiscal 2008 and 2010 were substantically completed as of October 31, 2015. Severance and infrastructure related cash payment associated with the other plans are expected to be paid out through fiscal 2019.

$ millions	Balance October 31, 2014	Charges	Cash payments	Other Adjustments & Non-cash Settlements	Balance October 31, 2015
Fiscal 2015 Plan
Severance	$0	$390	$0	$0	$390
Infrastructure and other	0	1	(1)	0	0
Total 2015 Plan	0	391	(1)	0	390
Fiscal 2012 Plan
Severance and EER	955	566	(1,101)	(78)	342
Infrastructure and other	98	74	(120)	(4)	48
Total 2012 Plan	1,053	640	(1,221)	(82)	390
Other plans
Severance	7	(4)	(1)	(1)	1
Infrastructure	54	(10)	(20)	0	24
Total other Plans	61	(14)	(21)	(1)	25
Total restructuring plans	$1,114	$1,017	$(1,243)	$(83)	$805
Reflected in conslidated balance sheets
Accrued restructuring	$898				$689
Other liabilities	$216				$116

(a) Which of the following in NOT an example of a common non-cash charge associated with corporate restructuring activities?

Inventory revaluations

Severance paid to employees

Fixed-asset write-downs

Impairment charges on intangible assets

(b) Using the financial statement effects template, show the effects on financial statements of the (1) 2015 restructuring charge of $1,017 million, and (2) 2015 cash payment of $1,243 million.

Use negative signs with answers, when appropriate.

	Balance Sheet (in $ millions)
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital
(1)	Answer		Answer		Answer		Answer		Answer
(2)	Answer		Answer		Answer		Answer		Answer

Income Statement
Revenue	-	Expenses	=	Net Income
Answer		Answer		Answer
Answer		Answer		Answer

(c) Assume that instead of accurately estimating the anticipated restructuring charge in 2015, the company overestimated them by $30 million.

(1) How would this overestimation affect financial statements in 2015?

Overstates the expense and understates pretax income by $30 million. The restructuring liability on the 2015 balance sheet will be overstated by $30 million.

Understates the expense and overstates pretax income by $30 million. The restructuring liability on the 2015 balance sheet will be overstated by $30 million.

Overstates the expense and understates pretax income by $30 million. The restructuring liability on the 2015 balance sheet will be understated by $30 million.

Understates the expense and understates pretax income by $30 million. The restructuring liability on the 2015 balance sheet will be overstated by $30 million.

(2) How would this overestimation affect financial statements in 2016 when severance costs are paid in cash?

The cash paid out in 2016 will be more than the 2015 accrual. Any excess (the $30 million) would increase expense (decrease profit) in 2016.

The overestimation from 2015 will have no effect on the 2016 balance sheet or income statement.

The cash paid out in 2016 will be less than the 2015 accrual. Any excess (the $30 million) would increase expense (decrease profit) in 2016.

The cash paid out in 2016 will be less than the 2015 accrual. Any excess (the $30 million) would reduce expense (increase profit) in 2016.