Harris Foods had the following independent situations.
1. A court recently found Harris liable for $400,000 in damages due to faulty coatings on paper plates it manufactures. Because Harris plans to appeal the decision and therefore currently accepts no blame, it ignores the $400,000 in its financial reports.
2. Harris buys discontinued utensils and repackages them for sale. Due to differing quality, each year Harris has average warranty returns of 25% of prior-year sales. Harris' policy is to provide full refunds for customers. Harris discloses the potential returns in the notes to its financial statements.
3. Harris prides itself on giving back to its community and considers it an obligation. In the coming year, Harris plans to give $50,000 to the local food bank. It therefore records a $50,000 contingent liability on its balance sheet.
Required
For each situation, identify whether Harris is using proper accounting and if not, how each situation should be handled.