The purpose of this assignment is to analyze liabilities when making business decisions.

Read Case Study 13-1 "Accounting for Contingent Assets: The Case of Cardinal Health," from Chapter 13 in the textbook.

executive summary to the Cardinal Health CEO, address the following.

1.Explain the justification that could be given for deducting the expected litigation gain from cost of good sold and explain why Cardinal Health chose this alternative rather than reporting it as a nonoperating item.

2.Explain what the senior Cardinal Health executive meant when he said, "We do not need much to get over the hump, although the preference would be the vitamin case so that we do not steal from Q3." Include specific clarification of the phrase "not steal from Q3."

3.Explain specifically what Cardinal Health did to get into trouble with the SEC.

4.Justify the timing of the $10 million and $12 million gains, and explain how Cardinal Health's senior managers defend these decisions.

5.Cardinal Health received more than $22 million from the litigation settlement. Discuss whether the actions of Cardinal Health senior managers were so wrong that they justify the actions of the SEC. Classify Cardinal Health's behavior on a scale from 1-10, with 1 being "relatively harmless" and 10 being "downright fraudulent." Justify your rating.

BOX 13.1 Example of Corporate Disclosures for Provisions

13.1.1 Closing Balances

13.1.2 Changes in Provisions for Liabilities and Charges During the Period

millions 12.31.2016 12.31.2015 12.31.2014

Non-current provisions for liabilities and charges 333.3 195.9 193.6

Other non-current provisions(1) 333.3 195.9 193.6

Current provisions for liabilities and charges 810.7 754.6 722.0

Provisions for restructuring 47.5 50.9 65.5

Provisions for product returns 323.4 309.3 244.4

Other current provisions(1) 439.8 394.4 412.1

TOTAL 1,144.0 950.4 915.6

(1) This item includes provisions for tax risks and litigation, industrial, environmental and commercial risks relating to operations (breach of contract),

personnel-related costs and risks relating to investigations carried out by competition authorities.

The provisions relating to investigations carried out by competition authorities amount to 214.4 million at December 31st, 2016 compared with 212.5

million at December 31st, 2015 and 239.4 million at December 31st, 2014 (note 12.2.2.a and b).

The provisions relating to the dispute on IPI with the tax administration in Brazil amount to 91.4 million and 20.8 million respectively at December 31st,

2016 and December 31st, 2015 (note 12.2.1.).

This caption also includes investments in associates when the Group's share in net assets is negative (note 8).

millions 12.31.2014 12.31.2015 Charges(2)

Reversals

(used)(2)

Reversals

(not used)(2) Other(1) 12.31.2016

Provisions for restructuring 65.5 50.9 48.5 40.4 6.1 5.4 47.5

Provisions for product returns 244.4 309.3 303.1 216.8 79.3 7.2 323.4

Other provisions for liabilities

and charges

605.7 590.2 219.7 115.2 51.8 130.1 773.1

TOTAL 915.6 950.4 571.3 372.4 137.2 131.9 1,144.0

1 Mainly resulting from translation differences and 58.4 million relating to the dispute on IPI with the tax administration in Brazil (note 12.2.1.).

2 These figures can be analysed as follows:

millions Charges Reversals (used) Reversals (not used)

Other income and expenses 50.6 40.5 7.8

Operating profit 480.2 322.2 107.1

Income tax 40.5 9.7 22.3

book Young, S.D., Cohen, J., & Bens, D. A. (2019).Corporate financial reporting and analysis: A global perspective(4th ed.). Hoboken, NJ: Wiley.