Baffinland Smelting Co. experienced the following events in the past year. Identify the correct accounting treatment for each item.
a. Baffinland is being sued for $5 million by citizens living within a five-kilometre radius of the plant who claim the plant has violated air pollution laws. Baffinland’s lawyers believe the lawsuit, which is not yet settled, will result in a settlement of $1.4 million.
b. A remote chance exists that Baffinland could be sued by an end user of its products for ill health caused by the metal products produced in the smelter.
c. Baffinland is also being sued by an environmental group that believes metal products should not be produced because of their negative impact on the environment. Baffinland’s lawyers believe that the group will probably receive some payment, but they are not sure of the amount.