It is January 2021 and you are an accountant at Central Illinois Manufacturing (CIM). In February 2020, the Environmental Protection Agency (EPA) assessed CIM a significant fine for a discharge from their Moline, Illinois, factory that significantly polluted a stream. In addition to the fine, the EPA required CIM to pay for cleanup costs. The cleanup took 6 months and cost $80,000,000. CIM recorded this amount as a loss in 2020. In March 2020, CIM submitted a claim in the amount of $72,000,000 (the costs less a 10% deductible) to its insurance company and maintained that the discharge was due to an accident that its insurance covers. However, as of January 2020, the insurance company has not paid the claim, although it is almost certain that they will within the next couple of months.

Unfortunately, CIM's 2020 financial statements must be prepared now. CIM's President believes the expected insurance proceeds of $72,000,000 should be offset against the previously recorded $80,000,000 loss and, thus, reported a net loss of $8,000,000 in 2020. The President asks you if you agree.