Darden Restaurants’ Contingent Liabilities The following excerpts are from the footnotes of Darden Restaurants’ financial statements of May 29, 2005:

In March 2003 and March 2002, two purported class action lawsuits were brought against us in the Superior Court of Orange County, California by three current and former hourly restaurant employees alleging violations of California labor laws with respect to providing meal and rest breaks. Although we continue to believe we provided the required meal and rest breaks to our employees, to avoid potentially costly and protracted litigation, we agreed during the second quarter of fiscal 2005 to settle both lawsuits and a similar case filed in Sacramento County, for approximately $9,500. Terms of the settlement, which do not include any admission of liability by us, have received preliminary judicial approval, but completion of the settlement may not occur for several months. We recorded settlement expenses associated with these lawsuits of approximately $4,500 during fiscal 2005 and $5,000 during fiscal 2004, which are included in selling, general and administrative expenses. The settlement amounts of these lawsuits are included in other current liabilities at May 29, 2005.

In August 2003, three former employees in Washington filed a similar purported class action in Washington State Superior Court in Spokane County alleging violations of Washington labor laws with respect to providing rest breaks. The Court stayed the action and ordered the plaintiffs into our mandatory arbitration program; the plaintiffs’ motion for reconsideration was not granted, and their appeal of the denial of reconsideration was also not granted. We believe we provided the required meal and rest breaks to our employees, and we intend to vigorously defend our position in this case.

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? Why is there a difference in the actions taken by the company as discussed in the first and second paragraphs?