P$13-6$ Various contingencies; disclosures $$ LO$13-5,$ LO$13-6$ Problem $13-6$ Working Paper

Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern's fiscal year

ends December $31,$ and the $2024$ financial statements are issued on March $15,2025.$

a$.$ Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February $3,2025,$ judgment was rendered against Eastern in

the amount of $$107$ million plus interest, a total of $$122$ million. Eastern plans to appeal the judgment and is unable to predict its

outcome though it is not expected to have a material adverse effect on the company.

b$.$ In November $2023,$ the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of

environmental laws regulating hazardous waste. On January $12,2025,$ Eastern reached a settlement with state authorities. Based upon

discussions with legal counsel, the Company feels it is probable that $$140$ million will be required to cover the cost of violations. Eastern

believes that the ultimate settlement of this claim will not have a material adverse effect on the company.

c$.$ Eastern is the plaintiff in a $$200$ million lawsuit filed against United Steel for damages due to lost profits from rejected contracts and for

unpaid receivables. The case is in final appeal and legal counsel advises that it is probable that Eastern will prevail and be awarded $$100$

million.

d$.$ At March $15,2025,$ Eastern knows a competitor has threatened litigation due to patent infringement. The competitor has not

yet filed a lawsuit. Management believes a lawsuit is reasonably possible, and if a lawsuit is filed, management believes damages

of up to $$33$ million are reasonably possible.

Required:

Determine the appropriate way to report each situation, and prepare any necessary journal entries and disclosure notes. Explain your

reasoning.