ACC 422 WEEK 5 WILEYPLUS ASSIGNMENT
E13-13 (Contingencies) Presented below are three independent situations. Answer the question at the end of each situation.
1. During 2010, Maverick Inc. became involved in a tax dispute with the IRS. Maverick’s attorneys
have indicated that they believe it is probable that Maverick will lose this dispute. They
also believe that Maverick will have to pay the IRS between $800,000 and $1,400,000. After
the 2010 financial statements were issued, the case was settled with the IRS for $1,200,000.
What amount, if any, should be reported as a liability for this contingency as of December 31,
2010?
have indicated that they believe it is probable that Maverick will lose this dispute. They
also believe that Maverick will have to pay the IRS between $800,000 and $1,400,000. After
the 2010 financial statements were issued, the case was settled with the IRS for $1,200,000.
What amount, if any, should be reported as a liability for this contingency as of December 31,
2010?
2. On October 1, 2010, Holmgren Chemical was identified as a potentially responsible party by the
Environmental Protection Agency. Holmgren’s management along with its counsel have concluded
that it is probable that Holmgren will be responsible for damages, and a reasonable estimate of
these damages is $6,000,000. Holmgren’s insurance policy of $9,000,000 has a deductible clause
of $500,000. How should Holmgren Chemical report this information in its financial statements at
December 31, 2010?
Environmental Protection Agency. Holmgren’s management along with its counsel have concluded
that it is probable that Holmgren will be responsible for damages, and a reasonable estimate of
these damages is $6,000,000. Holmgren’s insurance policy of $9,000,000 has a deductible clause
of $500,000. How should Holmgren Chemical report this information in its financial statements at
December 31, 2010?
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