Question

Contingent Liabilities

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 $420,000. The company is contesting the fine. In addition, an employee is seeking $430,000 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.

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 $180,000 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 materials spill. Use the account "Damage Awards and Fines" to recognize the expense for the period. If an amount box does not require an entry, leave it blank.

	Damage Awards and Fines
	EPA Fines Payable
	Litigation Claims Payable

Answer 1

ANSWER:

(A)

Account	Debit	Credit
Damage Awards and Fine	600,000
EPA fine payable		180,000
Litigation Claim payable		420,000

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Answer 2

Can you please show the process of how you got these answers. My assignment has different number.