This purpose of this memo is to analyze the two accounting circumstances that a company is
encountering related to a lawsuit that they are facing and provide a solution to these issues. The
first issue discussed is the company is required to decide whether or not a loss should be accrued,
and for what amount. The second issue is to determine if the company’s financial statements are
required to properly state a disclosure.
BACKGROUND
In a huge lawsuit, a private property owner is suing for 5 million dollars in damages caused by a
nearby chemical leak from a chemical company. The company’s attorney has come to the
conclusion the ultimate loss caused by the chemical leak has to be between 1-3 million dollars.
