Reference no: EM132936310

Doran company had an accident with its delivery truck at the end of the quarter. The accident caused a fire that burnt down a building housing a restaurant and dry cleaner near Doran's plant. Contractors have predicted it will cost $1,000,000 to replace the restaurant due to the need to clear away the wreckage from the old building and create a new foundation. However, there is some chance the new foundation can be salvaged, which would reduce the cost to $900,000. While it is unlikely, there is also a chance that the fire caused toxic chemicals in the dry cleaner to spread across the site. That would require an additional $400,000 in clean up costs.

Problem 1: Doran intends to challenge their liability in court. They will argue the building was constructed wrong. However, their attorneys tell them it is probable they will have to pay. How much, if any, liability should Doran include on their financial statements?