Question
The below is the assignment. As you know, the company has had a very profitable quarter, and management has decided to accrue a liability previously
The below is the assignment.
As you know, the company has had a very profitable quarter, and management has decided to accrue a liability previously disclosed concerning a hazardous waste site cleanup. I need to provide financial accounting with an accrual amount for the quarters financial reporting. Management has decided to accrue at the lower range of the 68% confidence interval and has asked me to provide the dollar amount. Im giving you this assignment. Heres what you need to know: Environmental Engineering has provided the following cleanup forecast with probabilities in parentheses (in thousands of dollars): Low estimate $15,000 (0.20) Most likely $20,000 (0.70) High estimate $25,000 (0.10) Heres what I need from you: Provide the accrual amount for the quarterly 10Q statement.
Below is my calculation....I do not feel confident about this assignment/my answer. Can I get some guidance...???? Thank you!
Expected Return= Low Estimate x Probability low estimate + Most Likely Estimate x Probability Most Likely + High Estimate Amount x Probability High Estimate Expected Return= 15,000 (0.20) + 20,000 (.0.70) + 25,000 (0.10) Expected Return= 3,000 + 14,000 + 2,500 Expected Return= $19,500
Low estimate $15,000 (0.20) Most likely $20,000 (0.70) Mean= $19,500 High estimate $25,000 (0.10) Mean 19,500
Variance 1.78983E+14
Low estimate 15,000 20,250,000 Low Estimate (15000-19500)^2 Most likely 20,000 250,000 (4,500)^2 High estimate 25,000 30,250,000 20,250,000 High Estimate (20,000-19500)^2 (500)^2 250,000 Most Likely (25,000-19500)^2 (5,500)^2
30,250,000 (20,250,000-19500)^2+ (250,000-19500)^2+(30,250,000-19500)^2
Square Root= (20,230,500)^2 + (230,500)^2 + (30,230,500)^2/ 3-1
Square Root= (4,497.83 + (480.10) + (913,883)/ 3-1
Square Root= (918,860.93)/ 3-1
Square Root = 958.57/ 3-1 958.57/2 479.29 19979.29
Required Confidence Level is= +$479.29 of mean= $19,979.29
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