How would 3M account for the contingent liability arising from an environmental lawsuit? The State of Minnesota is suing 3M (NYSE:MMM) for $5 billion in damages, alleging that 3M dumped chemicals it produced into landfills from the 1940s through the 1970s. The State asserts that those chemicals have now leached into local groundwater, affecting about 60,000 residents. 3Ms attorneys have responded that the chemicals have not been proven to have any negative effects on humans.

Questions 1. What is a contingent liability?

2. What are the three potential accounting treatments for a contingent liability?

3. In your opinion, how do you think 3M will treat this contingent liability?