Reference no: EM133016298

Question - Barone, Inc. is involved with several situations that possibly involve contingencies. Each is described below. Barone's fiscal year ends December 31, and the 2021 financial statements are issued on March 1, 2022.

1. At March 1, 2022, the EPA is in the process of investigating possible chemical leaks at two of Barone's facilities, but has not proposed a deficiency assessment. Management feels an assessment is reasonably possible, and if an assessment is made an unfavorable settlement of up to $8 million is reasonably possible.

2. Barone is the plaintiff in a $33 million lawsuit filed against Faze Corp. 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 Finley will prevail and be awarded $25 million.

3. In July 2020, the State of Arkansas filed suit against Barone, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On February 12, 2022, Barone reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $13 million will be required to cover the cost of violations. Barone believes that the ultimate settlement of this claim will not have a material adverse effect on the company.

4. Barone is involved in a lawsuit resulting from a dispute with a customer. On January 5, 2022, judgment was rendered against Barone in the amount of $16 million plus interest, a total of $18 million. Barone 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.

Required -

1. Determine the appropriate means of reporting each situation. Explain your reasoning.

2. Necessary journal entries and disclosure notes.