The Following Selected Transactions Relate to Contingencies of Bowe-Whitney Inc

question 83

Essay

The following selected transactions relate to contingencies of Bowe-Whitney Inc. Bowe-Whitney's fiscal year ends on December 31, 2018, and financial statements are published in March 2019.
1. Bowe-Whitney is involved in a lawsuit resulting from a dispute with a customer over a 2018 transaction. At December 31, attorneys advised that it was probable that Bowe-Whitney would lose $3 million in an unfavorable outcome. On February 12, 2019, judgment was rendered against Bowe-Whitney in the amount of $14 million plus interest, a total of $15.2 million. Bowe-Whitney does not plan to appeal the judgment.
2. Since August of 2018, Bowe-Whitney has been involved in labor disputes at two of its facilities. Negotiations between the company and the unions have not produced a settlement and, since January 2018, strikes have been ongoing at these facilities. It is virtually certain that material costs will be incurred but the amount of resultant costs cannot be adequately predicted.
3. Bowe-Whitney is the defendant in a lawsuit filed in January 2019 in which Access Company seeks $10 million as an adjustment to the purchase price related to the sale of Bowe-Whitney's hardwood division in 2018. The lawsuit alleges that Bowe-Whitney misrepresented the division's assets and liabilities. Legal counsel advises that it is reasonably possible that Bowe-Whitney could lose $5 million, but that it's extremely unlikely it could lose the $10 million asked for.
4. At March 1, 2019, the EPA is in the process of investigating the possibility of environmental violations at one of Bowe-Whitney's sites, but has not proposed a penalty assessment. Management feels an assessment is reasonably possible, and if an assessment is made, a settlement of up to $33 million is probable.
Required:
Prepare journal entries that should be recorded as a result of each of the above contingencies.

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Definitions:

Repeat Business

The phenomenon of customers consistently returning to purchase the same product or service from a business.

Omnichannel Retailers

Retailers that provide a seamless customer experience across multiple channels, including online and physical stores.

Seamless Experience

An interaction or service encounter that is smooth, efficient, and free of any inconvenient disturbances or interruptions for the user or customer.

Channel

A medium or pathway through which goods and services are delivered to consumers.