Keurig Green Mountain Coffee

How to account for a contingent liability

Keurig Dr Pepper Inc. (KDP) owns the brand Keurig Green Mountain i.e. (KGM).

In May 2011, Council for Education and Research on Toxics (CERT) filed a lawsuit in

the Superior Court of the State of California, County of Los Angeles, alleging that KGM, and certain other defendants who manufacture, package, distribute or sell coffee, failed

to warn persons in California that KGM's coffee products expose persons to the

chemical acrylamide in violation of Proposition 65.

The case did not move forward in light of a new regulation but CERT has filed its notice

to appeal, and KDP intends to continue vigorously defending itself in this action.

We highly encourage you to download 10-K form from KDP's website's Investor Relation

section to dig deeper.

Questions:

1. What is a contingent liability? Does this incident amount to be a contingent liability for

KDP?

2. What are the three potential accounting treatments for a contingent liability?

3. In your opinion, how should Keurig Dr Pepper deal with this contingent liability from an

accounting standpoint?