For each of the following scenarios determine if the firm should (a) record as a liability; (b) disclose The solution is on as a contingent liability; or (c) neither:
1. The Seco Co. has been sued by a group of individuals claiming the products they purchased from the company were defective and caused injuries. Seco’s lawyers have determined that the product in question could not possibly have caused the types of damages claimed and further that the same group of individuals has unsuccessfully sued several other companies claiming their products caused the same injuries. The likelihood of losing this lawsuit Is deemed remote.
2. The Everett Co. has guaranteed the loan of a subsidiary that is suffering minor financial distress. The chance that the loan will not be repaid is deemed remote.
3. Hiller Inc. has acquired a defunct mining company and assumed all its liabilities. Toxic waste from the defunct company was recently discovered to have leaked into some nearby wells. The evidence that the waste came from the mining company is very strong and the cost of cleanup is estimated to be \($4\) million.