Question

In: Accounting

Several months ago, Ayers Industries Inc. experienced a hazardous materials spill at one of its plants....

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.

Required:
A. On December 31, journalize the contingent liabilities associated with the hazardous materials spill. Use the account “Damage Awards and Fines” to recognize the expense for the period. Refer to the Chart of Accounts for exact wording of account titles.
B. Prepare a note disclosure relating to this incident.

Solutions

Expert Solution

Answer -

A)

1 ) 720 damge awards and fines .... a/c dr 365000

To 229 EPA fines payable a/c 240000

To 228 Litigation Claims Payable a/c 125000

B)

The company experienced a hazardous materials spill at one of its plants during the previous period. This spill has resulted in a number of lawsuits to which the company is a party. The Environmental Protection Agency (EPA) has fined the company 240000 which the company is contesting in court. Although the company does notadmit fault, legal counsel believes that the fine payment is probable in addition, an employee has sued company.$125,000 out-of-court settlement has been reached with the employee. The EPA fine and out-of-court settlement have been recognized as expense for the period. There is one other outstanding lawsuit related to this incident does not believe that the lawsuit has merit. Other lawsuits and unknown liabilities may arise from this incident.


Related Solutions

Several months ago, Ayers Industries Inc. experienced a hazardous materials spill at one of its plants....
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 $430,000. The company is contesting the fine. In addition, an employee is seeking $540,000 in damages related to the spill. Lastly, a homeowner has sued the company for $270,000. The homeowner lives 30 miles from the plant, but believes that the incident has reduced the home's resale value by $270,000. Ayers’ legal counsel...
Several months ago, Ayers Industries Inc. experienced a hazardous materials spill at one of its plants....
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 $258,000. The company is contesting the fine. In addition, an employee is seeking $202,000 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...
Several months ago, Ayers Industrial Inc. experienced a hazardous material spill at one of its plants....
Several months ago, Ayers Industrial Inc. experienced a hazardous material spill at one of its plants. As a result, the Environmental protection Agency (EAP) fined the company $450,000. The company is contesting the fine. In addition, an employee is seeking $420,000 in damages related to the spill. Finally, a homeowner has sued the company for $280,000. The homeowner lives 30 miles from the plant but believes that the incident has reduced the home's resale value by $280,000. Ayers legal counsel...
Several months ago, Ayers Industrial Inc. experienced a hazardous material spill at one of its plants....
Several months ago, Ayers Industrial Inc. experienced a hazardous material spill at one of its plants. As a result, the Environmental protection Agency (EAP) fined the company $450,000. The company is contesting the fine. In addition, an employee is seeking $420,000 in damages related to the spill. Finally, a homeowner has sued the company for $280,000. The homeowner lives 30 miles from the plant but believes that the incident has reduced the home's resale value by $280,000. Ayers legal counsel...
Contingent Liabilities Several months ago, Cinnabar Chemical Company experienced a hazardous materials spill at one of...
Contingent Liabilities Several months ago, Cinnabar Chemical Company experienced a hazardous materials spill at one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $1,416,000. The company is contesting the fine. In addition, an employee is seeking $342,000 damages related to injuries sustained while cleaning up the spill. Lastly, a homeowner has sued the company for $236,000. The homeowner lives 15 miles from the plant but believes that the incident has reduced the home's resale...
A few years ago there was a hazardous waste spill into the Danube River, coming from...
A few years ago there was a hazardous waste spill into the Danube River, coming from an aluminum processing plant. Some of the compounds in the sludge were iron oxide, aluminum oxide, silicon dioxide, calcium oxide, and titanium (IV) oxide. 1.Calculate the [Al3+] in a saturated solution of wavellite, Al3(PO4)2(OH)F2. Ksp=3.41 x 10-95 2. Calculate the solubility of wavellite in a solution of 0.15 M AlF3 (100% soluble).
Tombro Industries is in the process of automating one of its plants and developing a flexible...
Tombro Industries is in the process of automating one of its plants and developing a flexible manufacturing system. The company is finding it necessary to make many changes in operating procedures. Progress has been slow, particularly in trying to develop new performance measures for the factory. In an effort to evaluate performance and determine where improvements can be made, management has gathered the following data relating to activities over the last four months: Month 1 2 3 4 Quality control...
Tombro Industries is in the process of automating one of its plants and developing a flexible...
Tombro Industries is in the process of automating one of its plants and developing a flexible manufacturing system. The company is finding it necessary to make many changes in operating procedures. Progress has been slow, particularly in trying to develop new performance measures for the factory. In an effort to evaluate performance and determine where improvements can be made, management has gathered the following data relating to activities over the last four months:    Month 1 2 3 4 Quality...
Tombro Industries is in the process of automating one of its plants and developing a flexible...
Tombro Industries is in the process of automating one of its plants and developing a flexible manufacturing system. The company is finding it necessary to make many changes in operating procedures. Progress has been slow, particularly in trying to develop new performance measures for the factory. In an effort to evaluate performance and determine where improvements can be made, management has gathered the following data relating to activities over the last four months: Month 1 2 3 4 Quality control...
Tombro Industries is in the process of automating one of its plants and developing a flexible...
Tombro Industries is in the process of automating one of its plants and developing a flexible manufacturing system. The company is finding it necessary to make many changes in operating procedures. Progress has been slow, particularly in trying to develop new performance measures for the factory. In an effort to evaluate performance and determine where improvements can be made, management has gathered the following data relating to activities over the last four months:    Month 1 2 3 4 Quality...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT