Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 8C
To determine
Draft a report that recommends the ways to account for the lawsuit using ethical standpoint and financial reporting.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Hart Corporation is a chemical company that produces cleaning fluids of different types. It is the main employer in a small town. Stan Hart has been the company president for 15 years and is paid a salary plus a 10% bonus based on pretax income; he is also the major shareholder. After treatment to remove pollutants, Hart has been draining the waste water from its production process into a nearby river for many years. Over the past year (2019), there have been several “fish kills” in the river. At the end of 2019, the Environmental Protection Agency (EPA) filed a $1 million lawsuit against Hart for violation of pollution control laws.
You are an accountant for the firm that is auditing Hart’s 2019 financial statements. Preliminary calculations show that Hart earned a pretax income of $600,000 for 2019, before considering the effects of the lawsuit. In a discussion with Stan Hart and Bob Brandt, the company’s attorney, you raise the issue of whether or not to report the lawsuit in the…
Research Problem 1. Gray Chemical Company
manufactured pesticides that were toxic. Over the course
of several years, the toxic waste contaminated the air and
water around the company's plant. Several employees
suffered toxic poisoning, and the Environmental
Protection Agency cited the company for violations. In
court, the judge found Gray guilty and imposed fines of
$15 million. The company voluntarily set up a charitable
fund for the purpose of bettering the environment and
funded it with $8 million. The company incurred legal
expenses in setting up the foundation and defending
itself in court. The court reduced the fine from $15
million to $7 million. Gray deducted the $8 million paid
to the foundation and the legal expenses incurred. The
IRS disallowed both deductions on the grounds that the
payment was, in fact, a fine and in violation of public
policy. Gray's president, Ted Jones, has contacted you
regarding the deductibility of the $7 million fine, the $8
million payment to the…
1. In November of the current year, an automobile manufacturing company recalled all pickup trucks manufactured during the past
two years. A flaw in the battery cable was discovered and the recall provides for replacement of the defective cables. The
estimated cost of this recall is $3.7 million.
2. The EPA has notified a company of violations of environmental laws relating to hazardous waste. These actions seek cleanup costs
penalties, and damages to property. The company is reasonably certain there will be cost associated with the cleanup, but cannot
estimate the amount. The cleanup cost could be as high as $4,170,000 or as little as $670,000 and insurance could reimburse all o
part of the cost. There is no way to more accurately estimate the cost to the company at this time.
3. Holland Company does not carry property damage insurance because of the cost. The company has suffered substantial losses
each of the past three years. However, it has had no losses for the current year.…
Chapter 9 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 9 - Prob. 1GICh. 9 - Prob. 2GICh. 9 - List the three characteristics of a liability....Ch. 9 - Prob. 4GICh. 9 - Prob. 5GICh. 9 - Prob. 6GICh. 9 - Prob. 7GICh. 9 - Prob. 8GICh. 9 - How does materiality affect the accounting for...Ch. 9 - Distinguish between an interest-bearing note and a...
Ch. 9 - Prob. 11GICh. 9 - How should long-term debt that is callable by a...Ch. 9 - Prob. 13GICh. 9 - Prob. 14GICh. 9 - Prob. 15GICh. 9 - Prob. 16GICh. 9 - Prob. 17GICh. 9 - Prob. 18GICh. 9 - Prob. 19GICh. 9 - Prob. 20GICh. 9 - Prob. 21GICh. 9 - Prob. 22GICh. 9 - Prob. 23GICh. 9 - Prob. 24GICh. 9 - Prob. 25GICh. 9 - Prob. 26GICh. 9 - Prob. 27GICh. 9 - Prob. 28GICh. 9 - The balance in Ashwood Companys accounts payable...Ch. 9 - On September 1, 2019, a company borrowed cash and...Ch. 9 - When a company receives a deposit from a customer...Ch. 9 - Bronson Apparel Inc. operates a retail store and...Ch. 9 - Prob. 5MCCh. 9 - Prob. 6MCCh. 9 - Prob. 7MCCh. 9 - Prob. 8MCCh. 9 - Prob. 9MCCh. 9 - Prob. 10MCCh. 9 - Rescue Sequences LLC purchased inventory by...Ch. 9 - Use the same information in RE9-1 except that the...Ch. 9 - Cee Co.s fiscal year begins April 1. At the...Ch. 9 - Prob. 4RECh. 9 - Prob. 5RECh. 9 - Smith Company is required to charge customers an...Ch. 9 - Wallace Corporation summarizes the following...Ch. 9 - Borat Company gives annual bonuses after the end...Ch. 9 - Prob. 9RECh. 9 - Prob. 10RECh. 9 - After years of experience, Dilcort Company...Ch. 9 - Prob. 1ECh. 9 - Notes Payable On December 1, 2019, Insto Photo...Ch. 9 - Non-Interest-Bearing Notes Payable On November 16,...Ch. 9 - Discounting of Notes Payable On October 30, 2019,...Ch. 9 - Disclosure of Debt On May 1, 2019, Ramden Company...Ch. 9 - Short-Term Debt Expected to Be Refinanced On...Ch. 9 - Short-Term Debt Expected to Be Refinanced On...Ch. 9 - Refundable Deposits Party Warehouse Inc. rents a...Ch. 9 - Prob. 9ECh. 9 - Property Taxes Family Practice Associates has an...Ch. 9 - Prob. 11ECh. 9 - Prob. 12ECh. 9 - Prob. 13ECh. 9 - Prob. 14ECh. 9 - Prob. 15ECh. 9 - Prob. 16ECh. 9 - Prob. 17ECh. 9 - Prob. 18ECh. 9 - Prob. 19ECh. 9 - Prob. 20ECh. 9 - Cash Rebates On January 1, 2020, Fro-Yo Inc. began...Ch. 9 - Prob. 22ECh. 9 - Prob. 1PCh. 9 - Notes Payable and Effective Interest On November...Ch. 9 - Trade Note Transactions Adjusto Corporation (which...Ch. 9 - Prob. 4PCh. 9 - Short-Term Debt Expected to Be Refinanced On...Ch. 9 - Non-Interest-Bearing Note Payable: Present Value...Ch. 9 - Prob. 7PCh. 9 - Prob. 8PCh. 9 - Payroll and Payroll Taxes Bailey Dry Cleaners has...Ch. 9 - Bonus Obligation and Income Tax Expense James...Ch. 9 - Prob. 11PCh. 9 - Contingencies Fallon Company, a toy manufacturer...Ch. 9 - Prob. 13PCh. 9 - Assurance-Type Warranty Clean-All Inc. sells...Ch. 9 - Prob. 15PCh. 9 - Premium Obligation Yummy Cereal Company is...Ch. 9 - Comprehensive Selected transactions of Lizard Lick...Ch. 9 - Comprehensive Selected transactions of Shadrach...Ch. 9 - Prob. 1CCh. 9 - Prob. 2CCh. 9 - Prob. 3CCh. 9 - Pending Damage Suit Disclosure On December 15,...Ch. 9 - Various Contingency Issues Skinner Company has the...Ch. 9 - Prob. 6CCh. 9 - Prob. 7CCh. 9 - Prob. 8CCh. 9 - Prob. 10C
Knowledge Booster
Similar questions
- In 2005 waste from Flash Limited destroyed a section of Fletcher’s Land. Members of the community demonstrated, and the company restored the land at a cost of $525,000. In 2006 the same section of Fletcher’s Land was destroyed. The Fletcher’s Land Citizens Association submitted an estimate for $680,000 to restore the land. Flash Limited is refusing to pay indicating that Slow Limited, the other company in the community should pay 50% of the restoration costs. In 2005 Slow Limited refused to pay any of the restoration costs. Flash Limited year end is December 31 2006. Indicate the accounting treatment and the disclosure in the financial statements of Flash Limited. Support your answer with the relevant IFRS.arrow_forwardDakota Corporation is an owner/operator of 15 water filtration systems in the Northwestern region of the United States. During February 2022, 4 of the tanks had leaks which contaminated the water and surrounding environment. Dakota is very concerned about their obligation to the community to maintain the environment. Dakota corrected the leaks by installing new water filters and liners which cost $500,000. These corrections will extend the life of the tanks and improve future production. These improvements will also prevent any future environmental contamination. Overall, the $500,000 spent on the new water filters and liners have improved the facility. Dakota is unsure whether the $500,000 spent for this environmental issue should be capitalized or expensed. Accounting Issue: Should Dakota capitalize or expense the $500,000 spent on the new water filters and liners?arrow_forwardin the new building? 40. In January, Prahbu purchased for $90,000 a new machine for use in an existing production line of his manufacturing business. Assume that the machine is a unit of property and is not a material or supply. Prahbu pays $2,500 to install the machine, and after the machine is installed, he pays $1,300 to perform a critical test on the machine to ensure that it will operate in accordance with quality standards. On November 1, the critical test is complete, and Prahbu places the machine in service on the production line. On December 3, Prahbu pays another $3,300 to perform periodic quality control testing after the machine is placed in service. How much will Prahbu be required to capitalize as the cost of the machine? Donn 11 LO 2-1 researarrow_forward
- In January, Prahbu purchased for $100,000 a new machine for use in an existing production line of his manufacturing business. Assume that the machine is a unit of property and is not a material or supply. Prahbu pays $4,075 to install the machine, and after the machine is installed, he pays $2,350 to perform a critical test on the machine to ensure that it will operate in accordance with quality standards. On November 1, the critical test is complete, and Prahbu places the machine in service on the production line. On December 3, Prahbu pays another $5,400 to perform periodic quality control testing after the machine is placed in service. How much will Prahbu be required to capitalize as the cost of the machine?arrow_forwarda b Weaver Company is being sued by a former employee, Weaver believes that there is a remote chance that the employee will win. The employee suing Weaver for damages of $40,000 Gulf Refinery had a gas explosion on one of its oil rigsGulf believes it is likely that it will have to pay environmental clean-up costs and damages in the future due to the gas explosion. Gulf cannot estimate the amount of the damages Lawson Enterprises estimates that it will have to pay $75,000 in warranty repairs next yeararrow_forwardThere was an explosion at the plant on December 23, 2021 with damages estimated at $1,385,000. The company has insurance to cover such incidents totaling $5,000,000 if the incident was an accident and $1,000,000 if it was due to company error. The incident was investigated and the explosion found to be due to a faulty gas tank that was last serviced on July 15, 2021. The company policy was to service every 6 months however industry standards was generally 3 months. Management was advised by legal counsel that there was a high probability the company would be held responsible for the damages. Employees were not injured during the incident however the employees’ union has indicated that there are discussions underway relating to filing a $3,000,000 claim for unsafe working conditions. Prepare the journal entries necessary to record the transactions above using appropriate dates. ii.Prepare the adjusting entries necessary at December 31, 2021 in order to properly report interest expense…arrow_forward
- Several months ago, Jones Company experienced a spill of hazardous materials into the White River from one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $405,000. The company contested the fine. In addition, an employee is seeking $180,000 damages related to the spill. Finally, a homeowner has sued the company for $260,000. Although the homeowner lives 30 miles downstream from the plant, he believes that the spill has reduced his home’s resale value by $260,000. Jones’ legal counsel believes the following will happen in relationship to these incidents: (a) It is probable that the EPA fine will stand. (b) An out-of-court settlement for $165,000 has recently been reached with the employee, with the final papers to be signed next week. (c) Counsel believes that the homeowner’s case is weak and will be decided in favor of Jones Company. (d) Other litigation related to the spill is possible, but the damage amounts are uncertain. …arrow_forwardhawler is a small manufacturing company specialising in making alloy casings. its main item of plant is a furnace which was purchased on 1 october 20x1. the furnace has two components: the main body (cost $60,000 including the environmental provision – see below) which has a ten-year life, and a replaceable liner (cost $10,000) with a five-year life. the manufacturing process produces toxic chemicals which pollute the nearby environment. legislation requires that a clean-up operation must be undertaken by shawler on 30 september 20y1 (ten years after 20x1) at the latest. shawler received a government grant of $12,000 relating to the cost of the main body of the furnace only. the following are extracts from shawler's statement of financial position as at 30 september 20x3 (two years after the acquisition of the furnace). carrying amount $ non-current assets furnace: main body 48,000 replaceable liner 6,000 current liabilities government grant 1,200 non-current liabilities government…arrow_forwardSeveral 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 $220,000in damages related to the spill. Finally, 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. Otherlitigation related to the spill is possible, but the damage amounts are uncertain. a. Journalize the contingent liabilities associated with the hazardous materials spill. Use…arrow_forward
- Blake furniture recently purchased new equipment for its plant. The list price of the equipment was $40,000.Company paid sales taxes of $2,100 at the date of purchase. Freight charges for theequipment totaled $680. Installation and training costs related to the equipment amounted to $900. During installation, one of the pieces of equipment was accidentally damaged by an employee. It cost $400 to repair this damage. Blake furniture will depreciate this equipment by the straight-line method (half-year convention) and 150% declining balance method over an estimated useful life of 4 years assuming a $3,000 scrap value. Prepare depreciation schedules. Give reasons for switching to straight line method in both the accelerated methods. Management wants to report the highest possible earnings in its financial statements, yet it also wants to minimize its taxable income reported to the tax authorities. Explain how both of these objectives can be met. Depreciation is often considered as…arrow_forwardSeveral 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 $276,000. The company is contesting the fine. In addition, an employee is seeking $202,000 in damages related to the spill. Finally, a homeowner has sued the company for $318,000. The homeowner lives 35 miles from the plant but believes that the incident has reduced the home’s resale value by $318,000.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 $130,000 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.Required:a. On December 31, journalize the contingent liabilities associated with the…arrow_forwardSeveral 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 $248,000. The company is contesting the fine. In addition, an employee is seeking $213,000 in damages related to the spill. Lastly, a homeowner has sued the company for $324,000. The homeowner lives 35 miles from the plant but believes that the incident has reduced the home’s resale value by $324,000. 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 $130,000 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. Required: a. Journalize the contingent liabilities associated with the…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
