Reference no: EM133099594

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 $550,000. The company is contesting the fine. In addition, an employee is seeking $480,000 in damages related to the spill. Finally, a homeowner has sued the company for $350,000. The homeowner lives 30 miles from the plant but believes that the incident has reduced the home's resale value by $350,000.

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 $210,000 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 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.

b. The note disclosure would ______ a statement that the EPA fine is probable and would ______ a statement about the homeowner lawsuit.