(Loss Contingency) Presented below is a note disclosure for Matsui Corporation. Litigation and Environmental: The Company has been notified, or is a named or a potentially responsible party in a number of governmental (federal, state and local) and private actions associated with environmental matters, such as those relating to hazardous wastes, including certain sites which are on the United States EPA National Priorities List (“Superfund”). These actions seek clean-up costs, penalties and/or damages for personal injury or to property or natural resources.In 2017, the Company recorded a pre-tax charge of $56,229,000, included in the “Other expense (income)—net” caption of the Company’s consolidated income statements, as an additional provision for environmental matters. These expenditures are expected to take place over the next several years and are indicative of the Company’s commitment to improve and maintain the environment in which it operates. At December 31, 2017, environmental accruals amounted to $69,931,000, of which $61,535,000 are considered noncurrent and are included in the “Deferred credits and other liabilities” caption of theCompany’s consolidated balance sheets.While it is impossible at this time to determine with certainty the ultimate outcome of environmental matters, it is management’s opinion, based in part on the advice of independent counsel (after taking into account accruals and insurance coverage applicable to such actions) that when the costs are finally determined they will not have a material adverse effect on the financial position of the Company.InstructionsAnswer the following questions.(a) What conditions must exist before a loss contingency can be recorded in the accounts?(b) Suppose that Matsui Corporation could not reasonably estimate the amount of the loss, although it could establish with a high degree of probability the minimum and maximum loss possible. How should this information be reported in the financial statements?(c) If the amount of the loss is uncertain, how would the loss contingency be reported in the financial statements?
(Loss Contingency) Presented below is a note disclosure for Matsui Corporation. Litigation and Environmental: The Company has been notified, or is a named or a potentially responsible party in a number of governmental (federal, state and local) and private actions associated with environmental matters, such as those relating to hazardous wastes, including certain sites which are on the United States EPA National Priorities List (“Superfund”). These actions seek clean-up costs, penalties and/or damages for personal injury or to property or natural resources.
In 2017, the Company recorded a pre-tax charge of $56,229,000, included in the “Other expense (income)—net” caption of the Company’s consolidated income statements, as an additional provision for environmental matters. These expenditures are expected to take place over the next several years and are indicative of the Company’s commitment to improve and maintain the environment in which it operates. At December 31, 2017, environmental accruals amounted to $69,931,000, of which $61,535,000 are considered noncurrent and are included in the “Deferred credits and other liabilities” caption of the
Company’s consolidated balance sheets.
While it is impossible at this time to determine with certainty the ultimate outcome of environmental matters, it is management’s opinion, based in part on the advice of independent counsel (after taking into account accruals and insurance coverage applicable to such actions) that when the costs are finally determined they will not have a material adverse effect on the financial position of the Company.
Instructions
Answer the following questions.
(a) What conditions must exist before a loss contingency can be recorded in the accounts?
(b) Suppose that Matsui Corporation could not reasonably estimate the amount of the loss, although it could establish with a high degree of probability the minimum and maximum loss possible. How should this information be reported in the financial statements?
(c) If the amount of the loss is uncertain, how would the loss contingency be reported in the financial statements?
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