Alton Company is a defendant in a wrongful death suit filed as a result of the death of an employee who was working on one of the company’s production lines. The plaintiff filed suit in June and has asked for damages of $3,000,000. Alton carries insurance for potential claims of this nature, but the insurance coverage amounts to $1,500,000. Legal counsel for Alton believes that the judge will rule in the plaintiff’s favor and that the company will have to pay about $2,200,000, but the settlement could reach $3,000,000.

Describe the treatment of this event and related lawsuit as financial statement disclosures and prepare journal entry as required.

Part B:

AAA kicks off a sales promotion on August 31, 2019. AAA included a redeemable coupon on each can of soup sold. Five coupons must be presented to receive a premium that costs AAA $2 each. AAA estimates that 70% of the coupons will be redeemed. Information available at December 31, 2019 is as follows:

Cans of soup sold: 1,500,000

Premiums purchased: 200,000

Coupons redeemed during 2019: 600,000

Calculate AAA’s estimated liability for premium claims, and make an adjustment journal entry on December 31, 2019. Show your calculations clearly.

Part C:

On January 1, 2020, Brown Mining Enterprises purchased an existing coalmine. Brown expects to operate the mine for four years (i.e., until the end of 2023), after which it is legally required to dismantle the coalmine. Brown estimates that it will have to pay $500,000 to dismantle the mine and accomplish the other required asset retirement activities such as filling and restoring land etc. at the end of the mine’s life. The applicable general interest rate for Brown is 10% (considering its credit standing and the interest rates on its other borrowings).

1. Prepare the journal entry to record the asset retirement obligation on January 1, 2020.

2. Prepare journal entries for depreciation and interest expense on December 31, 2020.