The following three independent sets of facts relate to contingent liabilities:

The following three independent sets of facts relate to contingent liabilities 1. In November of the current year an automobile manufacturing company recalled all pickup trucks manufactured during the past two years. A flaw in the battery cable was discovered and the recal provides for replacement of the defective cables. The estimated cost of this recall is $2 million 2. The EPA has notified a company of violations of environmental laws relating to hazardous waste These actions seek cleanup costs, penalties, and damages to property. The company is reasonably certain there will be cost associated with the cleanup, but cannot estimate the amount. The cleanup cost could be as high as $4,000,000 or as little as $500,000 and insurance could reimburse all or part of the cost. There is no way to more accurately estimate the cost to the company at this time 3. Holland Company does not carry property damage insurance because of the cost. The company has suffered substantial losses each of the past three years. However, it has had no losses for the current year. Management thinks this is too good to be true and is sure there will be significant losses in the coming year. However, the exact amount cannot be determined Required a. What are three categories of contingent liabilities 1. Remote possibility 2. Probable and can be reasonably estimated 3. Probable but cannot be reasonably estimated b. For each item above, determine the correct accounting treatment. Prepare any required journal entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet 2 Record the warranty expense for event 1 Note: Enter debits before credits. Event General Journal Debit Credit 2,000,000 Warranty payable 2,000,000 Record entry Clear entry View general journal b. For each item above, determine the correct accounting treatment. Prepare any required journal entries. (If no entry is required for a transactionlevent, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the fines associated with the violations of environmental laws for event 2. Note: Enter debits before credits. Event General Journal Debit Credit 2 Record entry Clear entry View general journal b. For each item above, determine the correct accounting treatment. Prepare any required journal entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet 2 Record the current year losses for property damage in event 3. Note: Enter debits before credits. Event General Journal Debit Credit Record entry Clear entry View general journal