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2 pages/β‰ˆ550 words
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Style:
APA
Subject:
Accounting, Finance, SPSS
Type:
Case Study
Language:
English (U.S.)
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Topic:

Accounting for Contingent Assets: The Case of Cardinal Health

Case Study Instructions:

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.
In a 250- to 500-word executive summary to the Cardinal Health CEO, address the following:
Explain the potential justification for deducting the expected litigation gain from cost of goods sold, and explain why Cardinal Health chose this alternative rather than reporting it as a nonoperating item.
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."
Explain specifically what Cardinal Health did to get into trouble with the SEC.
Justify the timing of the $10 million and $12 million gains, and explain how Cardinal Health's senior managers defend these decisions.
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 justified 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.
Prepare this assignment according to the guidelines found in the APA Style Guide, located in the Student Success Center. An abstract is not required.
This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.
You are required to submit this assignment to LopesWrite. A link to the LopesWrite technical support articles is located in Class Resources if you need assistance.

Case Study Sample Content Preview:

Analyzing Liabilities
Student’s Name
Institutional Affiliation
Analyzing Liabilities
1. Justification for deducting expected litigation from the cost of goods sold
In financial statements, reports on contingent assets and gains only appear if the occurrence is probable for contingent assets. The firm should be capable of estimating the value of such investments. Based on these facts, a class action suit was against Cardinal Health. Intending to resolve the matter amicably, on March 2000, the defendants reached a provisional agreement with the plaintiffs, and Cardinal Health would have received $22 million (Young et al., 2019). Unfortunately, Cardinal Health opted out of the deal and filed the claim independently. Because of the former litigation, Cardinal Health can estimate the value of the contingent assets, which will subsequently grant it a reasonable chance of winning the suit. Besides, by deducting the amount from the cost of goods sold, the organization provided the wrong impression of its operations by substantially overstating its operative revenue, earnings, and growth trend. Had the organization indicated contingent assets as a non-operating item, there would have been a significant decrease in profits during the FY 2001 and 2002. Therefore, the firm hid this situation to meet financial performance expectations.
2. Explanation of quote by Cardinal CEO
The statement by the senior management concerns the firm’s decline in profits during 2001. Therefore, this decline is the hump referred to by the senior executive. Intending to meet its financial performance expectations, Cardinal Health had to inflate the revenue without impacting Q3 revenue. After perusing the filed documents in court, the company noted the $22 million expected litigation settlement and revised its 2003 operating revenue by $5.3 million. The inference drawn from this quote is that the decline in revenue affected the Q3 revenue. Therefore, the decline in revenue explains why the firm’s management was trying to use incorrect accounting practices when recording its contingent asset gains.
3. Explanation of what Cardinal did to get into trouble wi...
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