Analyzing Contingent and Other Liabilities: The following independent situations represent various types of liabilities. Analyze each situation and indicate which of the following is the proper accounting treatment for the company: (a) record a liability on the balance sheet, (b) disclose the liability in a financial statement footnote, or (c) neither record nor disclose any liability.
1. A stockholder has filed a lawsuit against. attorney's have reviewed the facts of the case. Their review revealed similar lawsuits have never resulted in a cash award and it is highly unlikely that this lawsuit will either.
2. signed a 60-day, 10% note when it purchased items from another company.
3. The EPA notifiesthat a state where it has a plant is filing a lawsuit for groundwater pollution againstand another company that has a plant adjacent toplant. Test results have not identified the exact source of the polution. manufacturing process often produces by-products that can pollute groundwater.
4. manufactured and sold products to a retailer that later sold the products to consumers. will replace the product if it is found to be defective within 90 days of the sale to the consumer. Historically, 1.2% of the products are returned for replacement.