Instructions: 1. 2. Determine the appropriate means of reporting each situation and explain why Prepare any necessary journal entry.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
Finley Roofing is involved with several situations that possibly involve contingencies. Each is
described below. Finley's fiscal year ends December 31, and the 2023 financial statements are
issued on March 20, 2024.
1. Finley is involved in a lawsuit resulting from a dispute with a customer. On January 25, 2023,
judgment was rendered against Finley in the amount of $10 million plus interest, a total of $11
million. Finley plans to appeal the judgment, but does not expect the appeal to succeed.
2. At March 20, 2023, the EPA is in the process of investigating possible environmental
violations at one of Finley's work sites, but has not proposed a deficiency assessment.
Management feels an assessment is probable, and if an assessment is made an unfavorable
settlement between $15 million to $23 million is probable.
3. Finley is the plaintiff in a $41 million lawsuit filed against AA Asphalt for damages due to lost
profits from rejected contracts and for unpaid receivables. The case is in final appeal and legal
counsel advises that it is certain that Finley will prevail and be awarded $37 million. The settlement
is material to Finley's financial statements.
4. In October 2022, the State of Montana filed suit against Finley, seeking civil penalties and
injunctive relief for violations of environmental laws regulating hazardous waste. At the time, the
company's lawyers stated that it was probable that the company would have to pay $25 million in
fines. On February 3, 2023, Finley reached a settlement with state authorities. Based upon
discussions with legal counsel, the Company feels it is probable that $35 million will be required to
cover the cost of violations.
Instructions:
1.
2.
Determine the appropriate means of reporting each situation and explain why
Prepare any necessary journal entry.
Transcribed Image Text:Finley Roofing is involved with several situations that possibly involve contingencies. Each is described below. Finley's fiscal year ends December 31, and the 2023 financial statements are issued on March 20, 2024. 1. Finley is involved in a lawsuit resulting from a dispute with a customer. On January 25, 2023, judgment was rendered against Finley in the amount of $10 million plus interest, a total of $11 million. Finley plans to appeal the judgment, but does not expect the appeal to succeed. 2. At March 20, 2023, the EPA is in the process of investigating possible environmental violations at one of Finley's work sites, but has not proposed a deficiency assessment. Management feels an assessment is probable, and if an assessment is made an unfavorable settlement between $15 million to $23 million is probable. 3. Finley is the plaintiff in a $41 million lawsuit filed against AA Asphalt for damages due to lost profits from rejected contracts and for unpaid receivables. The case is in final appeal and legal counsel advises that it is certain that Finley will prevail and be awarded $37 million. The settlement is material to Finley's financial statements. 4. In October 2022, the State of Montana filed suit against Finley, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. At the time, the company's lawyers stated that it was probable that the company would have to pay $25 million in fines. On February 3, 2023, Finley reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $35 million will be required to cover the cost of violations. Instructions: 1. 2. Determine the appropriate means of reporting each situation and explain why Prepare any necessary journal entry.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Events after the reporting period
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education