13-5 Kodak vs. Polariod

13-5 Kodak vs. Polariod - Eastman Kodak vs. Polaroid...

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Eastman Kodak vs. Polaroid – Contingencies Eastman Kodak is an international conglomerate based in Rochester, New York It is the world's largest producer of photo- graphic products, specializing in amateur, professional, commercial and medical imaging equipment and supplies. Kodak manufactures and markets various components of imaging systems including films, photographic papers, processing services, photographic chemicals, cameras and projectors. Recent imaging products developed by Kodak include new generations of films, cameras, photographic papers and single-use cameras. Polaroid Corporation manufactures instant photographic equipment (cameras and film). It also sells other chemicals, optical, and electronic equipment related to imaging. Three "imaging business units" comprise Polaroid-Family, Technical/Industrial and Business-each contribute about one-third to total sales. Foreign sales comprise almost half of worldwide sales. Learning Objectives Understand the accounting implications and treatments of contingent losses and gains related to legal proceedings. Witness the asymmetric treatment of gains and losses and see evidence of conservatism in accrual accounting. Discover the strategic element involved with the financial statement footnote presentation of contingent losses and gains. Task Refer to the financial statements of Eastman Kodak (1990) and Polaroid Corporation (1991). Both companies refer to their mutual lawsuit in the financial statements and footnotes. Process a. Use the Legal Note (Eastman Kodak) and footnote 14: Contingencies (Polaroid) to prepare a summary of the important dates related to the litigation. b. Kodak did not make an accounting entry in 1976 when the suit was filed. Why might Kodak have been reluctant to do so? c. Recreate the entry Kodak made in 1990 to account for the decision. d. Why did Kodak make this entry even though the suit was still on appeal at the end of the 1990 fiscal year? Why did Ko- dak record a loss of only $888 million when the damage award of October 1990 amounted to $909.5 million? e. Polaroid did not make an accounting entry in 1976 when the suit was filed. Why not? f. Reconstruct the entry Polaroid made in 1991 when the litigation was settled. g. What prevented Polaroid from making an entry similar to this in 1990 (i.e., at the same time as Kodak made its entry)? Analysis h. What did Polaroid do with the settlement proceeds? (Hint: Refer to the statement of cash flows.) i. What adjustments, if any, would you make to the accompanying financial statements of Eastman Kodak and Polaroid if you wanted to value the companies using a capitalized earnings valuation approach? That is, to what extent are Kodak's (1990) and Polaroid’s (1991) earnings persistent?
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EASTMAN KODAK COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in millions) December 31, 1990 1989 Assets Current Assets Cash and cash equivalents $ 735 $ 1,095 Marketable securities 181 184 Receivables
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This note was uploaded on 05/03/2010 for the course ACCT 202 taught by Professor Yang during the Spring '10 term at UPenn.

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13-5 Kodak vs. Polariod - Eastman Kodak vs. Polaroid...

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