Several months ago, Ayers Industries Inc. experienced a hazardous materials spill at one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $450,000. The company is contesting the fine. In addition, an employee is seeking $460,000 in damages related to the spill. Lastly, a homeowner has sued the company for $280,000. The homeowner lives 30 miles from the plant, but believes that the incident has reduced the home's resale value by $280,000.

Ayers legal counsel believes that it is probable that the EPA fine will stand. In addition, counsel indicates that an out-of-court settlement of $200,000 has recently been reached with the employee. The final papers will be signed next week. Counsel believes that the homeowner's case is much weaker and will be decided in favor of Ayers. Other litigation related to the spill is possible, but the damage amounts are uncertain.

Question Content Area

a. Journalize the contingent liabilities associated with the hazardous materials spill. Use the account "Damage Awards and Fines" to recognize the expense for the period. If an amount box does not require an entry, leave it blank.

blank	Accounts PayableCashDamage Awards and FinesEPA Fines PayableLitigation Claims Payable	- Select -	- Select -
	Accounts PayableCashDamage Awards and FinesEPA Fines PayableProduct Warranty Payable	- Select -	- Select -
	Accounts ReceivableCashDamage Awards and FinesLitigation Claims PayableProduct Warranty Expense	- Select -	- Select -

Question Content Area

b. The company experienced a hazardous materials spill at one of its plants during the previous period. This spill has resulted in a number of lawsuits to which the company is a party. The Environmental Protection Agency (EPA) has fined the company $fill in the blank ae8945000fa3063_1, which the company is contesting in court. Although the company

doesdoes not

admit fault, legal counsel believes that the fine payment is

probablereasonably possibleremote

. In addition, an employee has sued the company. A $fill in the blank ae8945000fa3063_4 out-of-court settlement has been reached with the employee. The EPA fine and out-of-court settlement have been recognized as

a current assetan expenserevenue

for the period. There is one other outstanding lawsuit related to this incident. Counsel

doesdoes not

believe that the lawsuit has merit. Other lawsuits and unknown liabilities may arise from this incident.