Contingent Uablities Several months ago, Cinnabar Chemical Company experienced a hazardous materials spill at one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $1,416,000. The company is contesting the fine. In addition an employee is seeking S 342,000 damages related to injuries sustained while cearing up the spill Lastly, a homeowner has sued the company fo?S236 000. The homeowner lives 15 miles from the plant but believes that the incident has reduced the home's resale value by $236,000. Cinnabar's legal counsel believes that t is probable that the EPA ine will stand n addition, counsel indicates that an out-of-court sett ment of S ?3 75 has recent been reached with.the employee The a pap rs wlll be signed next week. Counsel belleves that the homeowner's case s much weaker and will be declded In favor of Cinnabar. Other ltigation related to the spi Is possible, but the damage amounts are uncertaln. a. Illustrate the effects of the contingent liabilities associated with the hazardous materials spill on the accounts and financial statements. If no account or activity is affected, select "No effect" from the dropdown list and leave the corresponding number entry box blank. Enter account decreases and cash outflows as negative amounts Balance Sheet Statement of Cash Income Assets Liabilities + Stockholders' Equity Flows Statement Statement of Cash Flows Income Statement b. If other litigation related to the spill is possible, but the damage amounts are uncertain, which of the following is the best course for Cinnabar to follow in its reporting? Contingent Uablities Several months ago, Cinnabar Chemical Company experienced a hazardous materials spill at one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $1,416,000. The company is contesting the fine. In addition an employee is seeking S 342,000 damages related to injuries sustained while cearing up the spill Lastly, a homeowner has sued the company fo?S236 000. The homeowner lives 15 miles from the plant but believes that the incident has reduced the home's resale value by $236,000. Cinnabar's legal counsel believes that t is probable that the EPA ine will stand n addition, counsel indicates that an out-of-court sett ment of S ?3 75 has recent been reached with.the employee The a pap rs wlll be signed next week. Counsel belleves that the homeowner's case s much weaker and will be declded In favor of Cinnabar. Other ltigation related to the spi Is possible, but the damage amounts are uncertaln. a. Illustrate the effects of the contingent liabilities associated with the hazardous materials spill on the accounts and financial statements. If no account or activity is affected, select "No effect" from the dropdown list and leave the corresponding number entry box blank. Enter account decreases and cash outflows as negative amounts Balance Sheet Statement of Cash Income Assets Liabilities + Stockholders' Equity Flows Statement Statement of Cash Flows Income Statement b. If other litigation related to the spill is possible, but the damage amounts are uncertain, which of the following is the best course for Cinnabar to follow in its reporting
