Several months ago, Welker Chemical Company experienced a hazardous materials spill at one of its plants. As a result, the Environmental Protection Branch (EPB), Atlantic Region, fined the company $410,000. The company is contesting the fine. In addition, an employee is seeking $400,000 for damages related to the spill. Lastly, a homeowner has sued the company for $260,000. The homeowner lives 30 km from the plant but claims that the incident has reduced the home's resale value by $260,000.
Welker's legal counsel believes that the EPB fine will probably stand. In addition, counsel indicates that an out-of-court settlement of $170,000 has recently been reached with the employee. The final papers will be signed next week. Counsel believes that the homeowner's case is much weaker and will be decided in favour of Welker. Other litigation related to the spill is possible, but the damage amounts are uncertain.
a. Journalize the contingent liabilities associated with the hazardous materials spill. Use the account "Damage Awards and Fines" to recognize the expense for the period.
b. Prepare a note disclosure relating to this incident.

  • CreatedSeptember 15, 2015
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