Reference no: EM132661300

Interpreting a Contingent Liability Footnote NC I Building Systems reports the following footnote to one of its recent 10-Ks related to its manufactur-ing of metal coil coatings and metal building components.

We have discovered the existence of trichloroethylene in the ground water at our Southlake, Texas facil-ity. Horizontal delineation concentrations in excess of applicable residential assessment levels have not been fully identified. We have filed an application with the Texas Commission of Environmental Quality ("TCEQ") for entry into the voluntary cleanup program. The cost of required remediation, if any, will vary depending on the nature and extent of the contamination. As of October 28, we have accrued $0.1 million to complete site analysis and testing. At this time, we cannot estimate a loss for any potential remediation costs, but we do not believe there will be a material adverse effect on our Consolidated Financial Statements.

Problem a. How has NCI reported this potential liability on its balance sheet?

Problem b. Does the $0.1 million accrual "to complete site analysis and testing" relate to a contingent liability? Explain.