Global Warming Company operates several plants at which limestone is processed into quicklime and hydrated lime. The Smokey Haze plant, where most of the equipment was installed many years ago, continually deposits a dusty white substance over the surrounding countryside. Citing the unsanitary condition of the neighboring community of Hazelcrest, the pollution of the Rock River, and the high incidence of lung disease among workers at Smokey Haze, the state's Pollution Control Agency has ordered the installation of air pollution control equipment. Also, the agency has assessed a substantial penalty, which will be used to clean up Hazelcrest. After considering the costs involved (which could not have been reasonably estimated prior to the agency's action), Global Warming Company decides to comply with the agency's orders, the alternative being to cease operations at Smokey Haze at the end of the current fiscal year. The officers of Global Warming agree that the air pollution control equipment should be capitalized and depreciated over its useful life, but they disagree over the period(s) to which the penalty should be charged. Required: a. Discuss the conceptual merits and reporting requirements of accounting for the penalty in each of the following: As a charge to the current period. As a correction of prior periods. As a capitalizable item to be amortized over future periods. b. Which method do you recommend and why?