Module 6 Other Liabilities and Equity Analysis Worksheet Proctor and Gamble Balance Sheet and Income Statement are provided below: if) 2. Legal, Environmental and Warranty Claims Litigation We are subject, from time to time, to certain legal proceedings and claims arising out of our business, which cover a wide range matters, including antitrust and trade regulation, product liability, advertising, contracts, environmental, patent and trademark matter labor and employment matters and tax. While considerable uncertainty exists, in the opinion of management and our counsel, the ultimate resolution of the various lawsui and claims will not materially affect our financial position, results of operations or cash flows. We are also subject to contingencies pursuant to environmental laws and regulations that in the future may require us to take action correct the effects on the environment of prior manufacturing and waste disposal practices. Based on currently available information we do not believe the ultimate resolution of environmental remediation will materially affect our financial position, results operations or cash flows. a. From the footnote above, what is the amount of liabilities that are recognized for environmental claims and litigation on P\&G's balance sheet? Why? b. How would the following scenarios discovered in July of 2019 affect the Proctor and Gamble balance sheet and income statement for the period ending June of 2020? - Proctor and Gamble has a toxic waste site related to their manufacturing facility and they are expecting the clean-up cost will be $2,000,000. Balance Sheet - Income Statement - - Proctor and Gamble is expecting to win a patent lawsuit with a competitor. They expect the judgement will be $4,000,000 and the litigation will be settled in the next fiscal period. Balance Sheet - Income Statement - - Proctor and Gamble is expecting to lose a lawsuit related to patent infringement for one of their beauty products. The estimated amount of the loss is $5,000,000. Balance Sheet - Income Statement - - In July of 2019, Proctor and Gamble had to recall Tide because a new ingredient caused several allergic reactions to customers. On June 30, 2019 they had a beginning balance in their warranty liabilities of $1,200 million. The estimated cost of the recall is $2,000 million. By June 30,2019 they had paid out $1,800 million related to the recall. Balance Sheet (calculate the ending liability amount) - Income Statement- Deferred Taxes Investor Decisions NOTE 5 INCOME TAXES Income taxes are recognized for the amount of taxes payable for the current year and for the impact of deferred tax assets and liabilities, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using the enacted statutory tax rates and are adjusted for any changes in such rates in the period of change. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "U.S. Tax Act"). The U.S. Tax Act significantly revised the future ongoing U.S. corporate income tax by, among other things, lowering the U.S. corporate income tax rates and implementing a hybrid territorial tax system. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate was phased in, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year ended June 30, 2018, and 21% for subsequent fiscal years. However, the U.S. Tax Act eliminated the domestic manufacturing deduction and moved to a hybrid territorial system, which also largely eliminated the ability to credit certain foreign taxes that existed prior to enactment of the U.S. Tax Act. There are also certain transitional impacts of the U.S. Tax Act. As part of the transition to the new hybrid territorial tax system, the U.S. Tax Act imposed a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries. In addition, the reduction of the U.S. corporate tax rate caused us to adjust our U.S. deferred tax assets and liabilities to the lower federal base rate of 21%. These transitional impacts resulted in a provisional net charge of $602 for the fiscal year ended June 30,2018 , comprised of an estimated repatriation tax charge of $3.8 billion (comprised of U.S. repatriation taxes and foreign withholding taxes) and an estimated net deferred tax benefit of $3.2 billion. The transitional impact was finalized during the fiscal year ended June 30, 2019, with no significant impact on income tax expense. Any legislative changes, as well as any other new or proposed Treasury regulations to address questions that arise because of the U.S. Tax Act, may result in additional income tax impacts which could be material in the period any such changes are enacted. The Global Intangible Low-Taxed Income ("GILTI") provision of the U.S. Tax Act requires the Company to include in its U.S. Income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets. An accounting policy election is available to account for the tax effects of GILTI either as a current period expense when incurred, or to recognize deferred taxes for book and tax basis differences expected to reverse as GILTI in future years. We have elected to account for the tax effects of GIITI as a current period expense when incurred. Earnings from continuing operations before income taxes consisted of the following: Income taxes on continuing operations consisted of the following: 3. Use the Proctor and Gamble income statement on pg. 2 to calculate the effective tax rate using the following equation from the notes: Module 6 Other Liabilities and Equity Analysis Worksheet Proctor and Gamble Balance Sheet and Income Statement are provided below: if) 2. Legal, Environmental and Warranty Claims Litigation We are subject, from time to time, to certain legal proceedings and claims arising out of our business, which cover a wide range matters, including antitrust and trade regulation, product liability, advertising, contracts, environmental, patent and trademark matter labor and employment matters and tax. While considerable uncertainty exists, in the opinion of management and our counsel, the ultimate resolution of the various lawsui and claims will not materially affect our financial position, results of operations or cash flows. We are also subject to contingencies pursuant to environmental laws and regulations that in the future may require us to take action correct the effects on the environment of prior manufacturing and waste disposal practices. Based on currently available information we do not believe the ultimate resolution of environmental remediation will materially affect our financial position, results operations or cash flows. a. From the footnote above, what is the amount of liabilities that are recognized for environmental claims and litigation on P\&G's balance sheet? Why? b. How would the following scenarios discovered in July of 2019 affect the Proctor and Gamble balance sheet and income statement for the period ending June of 2020? - Proctor and Gamble has a toxic waste site related to their manufacturing facility and they are expecting the clean-up cost will be $2,000,000. Balance Sheet - Income Statement - - Proctor and Gamble is expecting to win a patent lawsuit with a competitor. They expect the judgement will be $4,000,000 and the litigation will be settled in the next fiscal period. Balance Sheet - Income Statement - - Proctor and Gamble is expecting to lose a lawsuit related to patent infringement for one of their beauty products. The estimated amount of the loss is $5,000,000. Balance Sheet - Income Statement - - In July of 2019, Proctor and Gamble had to recall Tide because a new ingredient caused several allergic reactions to customers. On June 30, 2019 they had a beginning balance in their warranty liabilities of $1,200 million. The estimated cost of the recall is $2,000 million. By June 30,2019 they had paid out $1,800 million related to the recall. Balance Sheet (calculate the ending liability amount) - Income Statement- Deferred Taxes Investor Decisions NOTE 5 INCOME TAXES Income taxes are recognized for the amount of taxes payable for the current year and for the impact of deferred tax assets and liabilities, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using the enacted statutory tax rates and are adjusted for any changes in such rates in the period of change. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "U.S. Tax Act"). The U.S. Tax Act significantly revised the future ongoing U.S. corporate income tax by, among other things, lowering the U.S. corporate income tax rates and implementing a hybrid territorial tax system. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate was phased in, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year ended June 30, 2018, and 21% for subsequent fiscal years. However, the U.S. Tax Act eliminated the domestic manufacturing deduction and moved to a hybrid territorial system, which also largely eliminated the ability to credit certain foreign taxes that existed prior to enactment of the U.S. Tax Act. There are also certain transitional impacts of the U.S. Tax Act. As part of the transition to the new hybrid territorial tax system, the U.S. Tax Act imposed a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries. In addition, the reduction of the U.S. corporate tax rate caused us to adjust our U.S. deferred tax assets and liabilities to the lower federal base rate of 21%. These transitional impacts resulted in a provisional net charge of $602 for the fiscal year ended June 30,2018 , comprised of an estimated repatriation tax charge of $3.8 billion (comprised of U.S. repatriation taxes and foreign withholding taxes) and an estimated net deferred tax benefit of $3.2 billion. The transitional impact was finalized during the fiscal year ended June 30, 2019, with no significant impact on income tax expense. Any legislative changes, as well as any other new or proposed Treasury regulations to address questions that arise because of the U.S. Tax Act, may result in additional income tax impacts which could be material in the period any such changes are enacted. The Global Intangible Low-Taxed Income ("GILTI") provision of the U.S. Tax Act requires the Company to include in its U.S. Income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets. An accounting policy election is available to account for the tax effects of GILTI either as a current period expense when incurred, or to recognize deferred taxes for book and tax basis differences expected to reverse as GILTI in future years. We have elected to account for the tax effects of GIITI as a current period expense when incurred. Earnings from continuing operations before income taxes consisted of the following: Income taxes on continuing operations consisted of the following: 3. Use the Proctor and Gamble income statement on pg. 2 to calculate the effective tax rate using the following equation from the notes