Chemco Company is facing the following situations, and the owner of the company needs your help in identify the accounting treatment:
1. In making one of Chemco's products, Chemco leaked out waste into a nearby lake. Under provincial law, Chemco has to clean the polluted lake and also pay a fine. The total estimates for the incident would likely be $3 million.
2. A customer purchased pesticides from Chemco. The customer was injured due to inappropriate handling of the pesticides. The customer is suing Chemco $100,000 for his damage.
Requirement
1. Determine the appropriate accounting treatment. Based on your analysis, identify whether the company should (1) recognize a provision, (2) disclose a provision liability, or (3) determine no disclosure is required.