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Problem 1 The following selected transactions relate possible contingencies of Eastern Products Inc. which began operations in July, 2019. Eastern's fiscal year ends on December 31. Financial statements are published in April 2020. a. On January 10, 2020, an Eastern Products truck was involved in an accident causing severe damage to a building and two vehicles (no occupants in the vehicles). Eastern Products' lawyers state that a lawsuit is probable; that insurance will not cover this type of incident; and that they believe the cost to the company will be between $1M and $3M. b. On January 13, 2020, Eastern became aware of an engineering flaw in a product that has been sold for the past six months and that poses a potential risk of injury. As a result, a product recall is inevitable. This move would likely cost the company $1.5 million. c. On January 20, 2020, the State of Vermont filed suit against Eastern, asking civil penalties and injunctive relief for violations of clean water laws stemming from plant accident on December 11, 2019. Eastern reached a settlement with state authorities to pay $4.2 million in penalties on May 1, 2020. d. Eastern sold $100,000 worth of Reme products that have a one-year guarantee. Eastern estimates that a total of 4% of the sales will require replacement or repair. During the year, 1% of actual warranty repairs were provided. Requirements: For each scenario, indicate; 1. The amount that should be reported on the balance sheet. 2. Whether an explanation should be included in the notes to the financial statements. Amount in Balance Sheet Explain in F/S Notes (select)? Scenario a b d Problem 1 The following selected transactions relate possible contingencies of Eastern Products Inc. which began operations in July, 2019. Eastern's fiscal year ends on December 31. Financial statements are published in April 2020. a. On January 10, 2020, an Eastern Products truck was involved in an accident causing severe damage to a building and two vehicles (no occupants in the vehicles). Eastern Products' lawyers state that a lawsuit is probable; that insurance will not cover this type of incident; and that they believe the cost to the company will be between $1M and $3M. b. On January 13, 2020, Eastern became aware of an engineering flaw in a product that has been sold for the past six months and that poses a potential risk of injury. As a result, a product recall is inevitable. This move would likely cost the company $1.5 million. c. On January 20, 2020, the State of Vermont filed suit against Eastern, asking civil penalties and injunctive relief for violations of clean water laws stemming from plant accident on December 11, 2019. Eastern reached a settlement with state authorities to pay $4.2 million in penalties on May 1, 2020. d. Eastern sold $100,000 worth of Reme products that have a one-year guarantee. Eastern estimates that a total of 4% of the sales will require replacement or repair. During the year, 1% of actual warranty repairs were provided. Requirements: For each scenario, indicate; 1. The amount that should be reported on the balance sheet. 2. Whether an explanation should be included in the notes to the financial statements. Amount in Balance Sheet Explain in F/S Notes (select)? Scenario a b d