Question

Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern’s fiscal year ends December 31, and the 2016 financial statements are issued on March 15, 2017.

a.	Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2017, judgment was rendered against Eastern in the amount of $118 million plus interest, a total of $133 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company.
b.	In November 2015, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2017, Eastern reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $151 million will be required to cover the cost of violations. Eastern believes that the ultimate settlement of this claim will not have a material adverse effect on the company.
c.	Eastern is the plaintiff in a $211 million lawsuit filed against United Steel for damages due to lost profits from rejected contracts and for unpaid receivables. The case is in final appeal and legal counsel advises that it is probable that Eastern will prevail and be awarded $100 million.
d.	At March 15, 2017, Eastern knows a competitor has threatened litigation due to patent infringement. The competitor has not yet filed a lawsuit. Management believes a lawsuit is reasonably possible, and if a lawsuit is filed, management believes damages of up to $44 million are reasonably possible. 2-a Prepare the appropriate journal entries for these situations. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.) Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2017, judgment was rendered against Eastern in the amount of $118 million plus interest, a total of $133 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company. 2 In November 2015, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2017, Eastern reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $151,000,000 million will be required to cover the cost of violations. Eastern believes that the ultimate settlement of this claim will not have a material adverse effect on the company. 3 Eastern is the plaintiff in a $211 million lawsuit filed against United Steel for damages due to lost profits from rejected contracts and for unpaid receivables. The case is in final appeal and legal counsel advises that it is probable that Eastern will prevail and be awarded $100 million. 4 At March 15, 2017, Eastern knows a competitor has threatened litigation due to patent infringement. The competitor has not yet filed a lawsuit. Management believes a lawsuit is reasonably possible, and if a lawsuit is filed, management believes damages of up to $44 million are reasonably possible.

Answer 1

Answer can be Given in Following Formate:

SITUATION NO.	DESCRIPTION	WHETHER JOURNAL ENTRY REQUIRED	JOURNAL ENTRY
1	This represents a loss contingency. Based on the information Eastern is unable to predict the outcome of appeal. In addition, The outcome is not expected to have a material adverse effect on the company .Therefore Eastern would not record $ 133 million loss	NO Journal Entry not Required	NOT APPLICABLE
2	This is loss contingency. Because it is probable that Eastern would have to pay $ 151 million,Which can be reasonably estimated. Eastern should record the loss and related liability.	YES Journal entry required	Litigation Loss   DR.       $ 151000000 Litigation Liability CR.    $ 151000000
3	This is Gain contingency,Gain contingencies are not accrued even if gain is probable & reasonably estimable. The gain should be recognized only when realised. Thus ,The gain contingencies are not recorded in books	NO Journal Entry not Required	NOT APPLICABLE
4	In this Situation the EPA has not yet proposed a penalty assessment and the assessment is not probable So it will not be recorded in books	NO Journal Entry not Required	NOT APPLICABLE