At April 1, 2012, the Environmental Protection Agency is in the process of investigating a possible chemical leak last June at a facility of Shu Lamination, Inc. The EPA has not yet proposed a penalty assessment. Shu's fiscal year ends on December 31, 2011. The company's financial statements are published in April 2012.
Required:
For each of the following scenarios, determine the appropriate way to report the situation. Explain your reasoning and prepare any necessary journal entry.
1. Management feels an assessment is reasonably possible, and if an assessment is made an unfavorable settlement of $13 million is reasonably possible.
2. Management feels an assessment is reasonably possible, and if an assessment is made an unfavorable settlement of $13 million is probable.
3. Management feels an assessment is probable, and if an assessment is made an unfavorable settlement of $13 million is reasonably possible.
4. Management feels an assessment is probable, and if an assessment is made an unfavorable settlement of $13 million is probable.