What liability would be shown in the balance sheet

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Reference no: EM132920282

Several months ago, Endurance Battery Company experienced a hazardous materials spill at one of its plants. As a result, the state Environmental Protection Agency (EPA) fined the company $170 000. The company is contesting the fine. In addition, an employee is seeking $500 000 damages related to the spill. Last, but not least, a home owner has sued the company for $120 000. The home owner lives 40 kilometres from the plant, but believes that the incident has reduced the home's resale value by $120 000.Endurance Battery's legal counsel believes that it is probable that the EPA fine will stand. In addition, counsel indicates that an out-of-court settlement of $250 000 has recently been reached with the employee.The final papers will be signed next week. Counsel believes that the home owner's case is much weaker, and will be decided in favour of Endurance Battery. Other litigation related to the spill is possible, but the damage amounts are uncertain.

Problem 1: What liability would be shown in the balance sheet? Show the journal entry.

Problem 2: Prepare a footnote disclosure relating to this incident.

Reference no: EM132920282

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