EX 11-21; Contingent liabilities Several months ago, Reiltz Industries, Inc. exp
ID: 2354339 • Letter: E
Question
EX 11-21; Contingent liabilities Several months ago, Reiltz Industries, Inc. experienced a hazardous materials spill at one of its plants. As a result, the Enviromental Protection agency fined the company $570,000. The company is contesting the fine. In addition, an employee is seeking $560,000 in damages related to spill. Lastly, a homeowner has sued the company for $364,000. The homeowner lives 35 miles from the plant, but believes that the incident has reduced the home's resale value by $364,000. Reiltz's legal counsel believes that it is probable that EPA fine will stand. In addition, counsel indicates that an out-of-court settlement of $238,000 has recently been reached with the employee. The final papers will be signed next week. Counsel believes that the homeowner's case is much weaker and will be decided in favor of Reiltz. Other litigation related to the spill is possible, but the damage amounts are uncertain. Question: Prepare a note disclosure relating to this incident. Please show work and Thanks for your help.Explanation / Answer
Several months ago, Welker Chemical Company experienced a hazardous materials spill at one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $410,000. The company is contesting the fine. In addition, an employee is seeking $400,000 in damages related to the spill. Lastly, a homeowner has sued the company for $260,000. The homeowner lives 30 miles from the plant, but believes that the incident has reduced the home's resale value by $260,000.Welker's legal counsel believes that it is probable that the EPA fine will stand. In addition, counsel indicates that an out-of-court settlement of $170,000 has recently been reached with the employee. The final papers will be signed next week. Counsel believes that the homeowner's case is much weaker and will be decided in favor of Welker. Other litigation related to the spill is possible, but the damage amounts are uncertain.
a. Journalize the contingent liabilities associated with the hazardous materials spill. Use the account “Damage Awards and Fines” to recognize the expense for the period. Several months ago, Welker Chemical Company experienced a hazardous materials spill at one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $410,000. The company is contesting the fine. In addition, an employee is seeking $400,000 in damages related to the spill. Lastly, a homeowner has sued the company for $260,000. The homeowner lives 30 miles from the plant, but believes that the incident has reduced the home's resale value by $260,000.
Welker's legal counsel believes that it is probable that the EPA fine will stand. In addition, counsel indicates that an out-of-court settlement of $170,000 has recently been reached with the employee. The final papers will be signed next week. Counsel believes that the homeowner's case is much weaker and will be decided in favor of Welker. Other litigation related to the spill is possible, but the damage amounts are uncertain.
a. Journalize the contingent liabilities associated with the hazardous materials spill. Use the account “Damage Awards and Fines” to recognize the expense for the period. Several months ago, Welker Chemical Company experienced a hazardous materials spill at one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $410,000. The company is contesting the fine. In addition, an employee is seeking $400,000 in damages related to the spill. Lastly, a homeowner has sued the company for $260,000. The homeowner lives 30 miles from the plant, but believes that the incident has reduced the home's resale value by $260,000.
Welker's legal counsel believes that it is probable that the EPA fine will stand. In addition, counsel indicates that an out-of-court settlement of $170,000 has recently been reached with the employee. The final papers will be signed next week. Counsel believes that the homeowner's case is much weaker and will be decided in favor of Welker. Other litigation related to the spill is possible, but the damage amounts are uncertain.
a. Journalize the contingent liabilities associated with the hazardous materials spill. Use the account “Damage Awards and Fines” to recognize the expense for the period. Remember, contingent liabilities are journalized when they are both probable and estimable.
EPA fine, states it is probable it will stand.
Damage awards and fines $410,000
Contingent Liability-fines $410,000
Out of court settlement for $170,000. Although since the settlement was just reached, we would just use a payable account.
Damage awards and fines $170,000
Awards payable $170,000
The homeowner lawsuit is not thought to be a strong case, plus the amount of any actual damages is unforeseeable, therefore a journal entry would not normally be needed at all. Although those would still be disclosed to shareholders on financial statements. Remember, contingent liabilities are journalized when they are both probable and estimable.
EPA fine, states it is probable it will stand.
Damage awards and fines $410,000
Contingent Liability-fines $410,000
Out of court settlement for $170,000. Although since the settlement was just reached, we would just use a payable account.
Damage awards and fines $170,000
Awards payable $170,000
The homeowner lawsuit is not thought to be a strong case, plus the amount of any actual damages is unforeseeable, therefore a journal entry would not normally be needed at all. Although those would still be disclosed to shareholders on financial statements. Remember, contingent liabilities are journalized when they are both probable and estimable.
EPA fine, states it is probable it will stand.
Damage awards and fines $410,000
Contingent Liability-fines $410,000
Out of court settlement for $170,000. Although since the settlement was just reached, we would just use a payable account.
Damage awards and fines $170,000
Awards payable $170,000
The homeowner lawsuit is not thought to be a strong case, plus the amount of any actual damages is unforeseeable, therefore a journal entry would not normally be needed at all. Although those would still be disclosed to shareholders on financial statements.
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