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The following information appeared in the annual reports of Apparel America, Inc., Borden, Inc., and Exxon Corporation. APPAREL AMERICA, INC. In December 20X4 the Company

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The following information appeared in the annual reports of Apparel America, Inc., Borden, Inc., and Exxon Corporation. APPAREL AMERICA, INC. In December 20X4 the Company entered into an agreement to pay $460,000 to a former executive in settlement of certain litigation. According to the terms of the agreement, an initial payment of $150,000 was made in December 20X4, with the balance payable in five semiannual installments of $50,000 commencing June 30, 20X5 and a final payment of $60,000 on December 31, 20X7. The settlement has been discounted at an annual effective interest rate of 9% to reflect its present value at July 31, 20X6. BORDEN, INC. The Company, like others in similar businesses, is subject to extensive federal, state and local environmental laws and regulation. Although Company's environmental policies and practices are designed to ensure compliance with these laws and regulations, future developments and increasingly stringent regulation could require the Company to make additional unforeseen environmental expenditures. Accruals for environment matters are recorded when it is probable a liability has been incurred and the amount of the liability can be reasonably estimated. Environmental accruals are routinely reviewed on an interim basis as events and developments warrant and are subject to a comprehensive review annually during the fiscal fourth quarter. The Company has each accrued approximately $26 million (including those costs related to legal proceedings) at December 31, 20X9 and 20X8, for probable environmental remediation and restoration liabilities. This is management's best estimate of these liabilities. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such liabilities may exceed current reserves by amounts that may prove insignificant, or by amounts, in the aggregate, of up to approximately $16 million. EXXON CORPORATION A number of lawsuits, including class actions, have been brought in various courts against Exxon Corporation and certain of its subsidiaries relating to the release of crude oil from the taker Exxon Valdez in 20X3. Most of these lawsuits seek unspecified compensatory and punitive damages, several lawsuits seek damages in varying specified amounts. Certain of the lawsuits seek injunctive relief. The claims of many individuals have been dismissed or settled. Most of the remaining actions are scheduled for trial in federal court commencing May 2, 20X8. Other actions will likely be tried later in 20X8. The cost to the corporation from these lawsuits is not possible to predict; however, it is believed that the final outcome will not have a materially adverse effect upon the corporation's operations or financial condition. Required a. Explain whether each of the preceding examples represents a loss contingency. (6 points) b. Borden has a $26 million liability on its 2000 balance sheet for probable environmental remediation and restoration. But the company says actual remediation and restoration costs could be up to $16 million more than this amount. Why doesn't balance sheet liability include the additional $16 million? (2 points) c. Why doesn't Exxon report a dollar amount for its litigation case like the one reported by Apparel America? (2 points) d. Does the lack of a specific dollar amount in Exxon's case mean that stock analysts will just ignore the litigation when valuing the company? Why or why not? (2 points)

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