Darden Restaurants’ Contingent Liabilities The following excerpts are from the footnotes of Darden Restaurants’ financial statements of May 25, 2008:
Like other restaurant companies and retail employers, in a few states we have been faced with allegations of purported class-wide wage and hour violations. In January 2004, a former food server fi led a purported class action in California state court alleging that Red Lobster’s “server banking” policies and practices (under which servers settle guest checks directly with customers throughout their shifts, and turn in collected monies at the shift’s end) improperly required her and other food servers and bartenders to make up cash shortages and walkouts in violation of California law. The case was ordered to arbitration. As a procedural matter, the arbitrator ruled that class-wide arbitration is permissible under our dispute resolution program. In January 2007, plaintiffs’ counsel fi led in California state court a second purported class action lawsuit on behalf of servers and bartenders alleging that Olive Garden’s server banking policy and its alleged failure to pay split shift premiums violated California law. Although we believed that our policies and practices were lawful and that we had strong defenses to both cases, following mediation with the plaintiffs, we reached a tentative resolution of the matters during the third quarter of fiscal 2008. As a result, we accrued approximately $4.0 million in legal settlement costs during the nine months ended February 24, 2008, which we expect to be paid in fiscal 2009. No additional reserves have been taken in connection with this settlement.
In August 2007, an action was fi led in California state court by a former Olive Garden server alleging that Olive Garden’s scheduling practices resulted in failure to properly pay reporting time (minimum shift) pay as well as to pay minimum wage, to provide itemized wage statements, and to timely pay employees upon the termination of their employment. The complaint sought to have the suit certified as a class action. Although we believed that our policies and practices were lawful and we had strong defenses, following mediation with the plaintiffs during the fourth quarter of fiscal 2008, we reached a preliminary settlement of this matter under which we would pay $0.7 million. We expect to pay the settlement amount during fiscal 2009 at the completion of the settlement process.

Required
1. Regarding the first paragraph of the contingency note, why did the company accrue an amount in its Current Liability category? At what point should accrual occur? How does an accrual affect the company’s financial statements?
2. Regarding the second paragraph of the contingency note, is disclosure of the legal dispute in the notes to the financial statements all that is required of Darden Restaurants, or is accrual required?