Contingent liabilitiesSeveral months ago, Ayers Industries Inc. experienced a hazardous materials spill at one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $240,000. The company is contesting the fine. In addition, an employee is seeking $220,000 in damages related to the spill. Lastly, a homeowner has sued the company for $310,000. The homeowner lives 35 miles from the plant but believes that the incident has reduced the home's resale value by $310,000.Ayers' legal counsel believes that it is probable that the EPA fine will stand. In addition, counsel indicates that an out-of-court settlement of $125,000 has recently been reached with the employee. The final paperswill be signed next week. Counsel believes that the homeowner's case is much weaker and will be decided in favor of Ayers. Other litigationrelated to the spill is possible, but the damage amounts are uncertain.A. Journalize the contingent liabilities associated with the hazardous material spill.Use the account "Damage Awards and Fines" to recognize the expense for the period. B. Prepare a note disclosure relating to this incident.
Several months ago, Ayers Industries Inc. experienced a hazardous materials spill at one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $240,000. The company is contesting the fine. In addition, an employee is seeking $220,000 in damages related to the spill. Lastly, a homeowner has sued the company for $310,000. The homeowner lives 35 miles from the plant but believes that the incident has reduced the home's resale value by $310,000.
Ayers' legal counsel believes that it is probable that the EPA fine will stand. In addition, counsel indicates that an out-of-court settlement of $125,000 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 Ayers. Other litigation
related to the spill is possible, but the damage amounts are uncertain.
A. Journalize the contingent liabilities associated with the hazardous material spill.Use the account "Damage Awards and Fines" to recognize the
expense for the period.
B. Prepare a note disclosure relating to this incident.
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