Case 7.2 Accrual for a Lawsuit, Writing an Issues Memo (Chapter 7, Page 219-220)

Your company has just been named as defendant in a lawsuit related to a leak of chemicals, from one of your company’s plants onto private property. The plaintiff is suing for $5 million in damages; your company’s attorneys believe the ultimate amount of loss could range between $1 million and $3 million, with no amount in the range more likely than other amounts in the range. The lawsuit is expected to be resolved in the middle of next year. Citing from authoritative literature, prepare a brief accounting issues memo to the files addressing (1) whether a loss should be accrued, and for what amount, and (2) what disclosures should be made in the company’s financial statements.

Your memo should be no more than 4 pages.

You should use 12-point Times New Roman font, one-inch margin on all sides, double spacing in the main text and single spacing in the header.