Contingent liabilities

Several months ago, Ayers Industries Inc. experienced a hazardous materials spill at one of its plants. As a result, the

Environmental Protection Agency $($EPA$)$ fined the company $$640,000.$ The company is contesting the fine. In addition, an

employee is seeking $$580,000$ in damages related to the spill. Lastly, a homeowner has sued the company for $$400,000.$ The

homeowner lives $30$ miles from the plant but believes that the incident has reduced the home's resale value by $$400,000.$

Ayers' 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 homeowner's case is much weaker and will be decided in favor of Ayers. Other litigation related to the spill

is possible, but the damage amounts are uncertain.

a$.$ Journalize the contingent liabilities associated with the hazardous materials spill. Use the account "Damage Awards and

Fines" to recognize the expense for the period. If an amount box does not require an entry, leave it blank.

b$.$ The company experienced a hazardous materials spill at one of its plants during the previous period. This spill has

resulted in a number of lawsuits to which the company is a party. The Environmental Protection Agency $($EPA$)$ has fined the

company $$,,$ which the company is contesting in court. Although the company

admit

fault, legal counsel believes that the fine payment is

$.$ In addition, an employee has sued the

company. A $

out$-$of$-$court settlement has been reached with the employee. The EPA fine and out$-$of$-$court

settlement have been recognized as

for the period. There is one other outstanding lawsuit related to

this incident. Counsel

believe that the lawsuit has merit. Other lawsuits and unknown liabilities may

arise from this incident.