Exercise 9-5A Contingent liabilities LO 9-3 Help Save & Exit Submit The following three independent sets of facts relate to contingent liabilities: 1. In November of the current year, an automobile manufacturing company recalled all pickup trucks manufactured during the past two years. A flaw in the battery cable was discovered and the recall provides for replacement of the defective cables. The estimated cost of this recall is $2.2 million 2. The EPA has notified a company of violations of environmental laws relating to hazardous waste. These actions seek cleanup costs, penalties, and damages to property. The company is reasonably certain there will be cost associated with the cleanup, but cannot estimate the amount. The cleanup cost could be as high as $4,020,000 or as little as $520,000 and insurance could reimburse all or part of the cost. There is no way to more accurately estimate the cost to the company at this time. 3. Holland Company does not carry property damage insurance because of the cost. The company has suffered substantial losses each of the past three years. However, it has had no losses for the current year. Management thinks this is too good to be true and is sure there will be significant losses in the coming year. However, the exact amount cannot be determined Required a. What are three categories of contingent liabilities? Help Save & Exh Subm b. For each item in the preceding list, determine the correct accounting treatment. Prepare any required journal entries. (If no entry required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the warranty expense for event 1. Note: Enter debits before credits. Event General Journal Debit Credit & Prev 19 of 20 Next s b. For each item in the preceding list, determine the correct accounting treatment. Prepare any required journal entres. at no entry required for a transaction/event, select "No journal entry required" in the first account field. View transaction list Journal entry worksheet Record the fines associated with the violations of environmental laws for event Note: Enter debits before credits Event General Journal Debit Credit b. For each item in the preceding list, determine the correct accounting treatment. Prepare any required journal entries. (If no entry required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet