In the late 1980s DuPont acknowledged that one of its

In the late 1980s, DuPont acknowledged that one of its products, a fungicide called Benlate,
seemed to be at fault for damage to millions of acres of nurseries and fruit plantations. In 1992,
after paying approximately $510 million in claims, the company concluded its product was not
responsible for the damage and halted further damage payments. This set the stage for over
700 lawsuits. In the notes to its 2004 financial statements, DuPont disclosed the following about
the Benlate lawsuits:In 1991, DuPont began receiving claims by growers that use of Benlate®
50DF fungicide had caused crop damage. DuPont has since been served with several hundred
lawsuits, most of which have been disposed of through trial, dismissal or settlement. . . . Twenty-
one of the 93 cases pending against the company at December 31,2004, were filed by growers
who allege plant damage from using Benlate® 50DF and, in some cases, Benlate® WP. Forty-
one of the pending cases seek to reopen settlements with the company by alleging that the
company committed fraud and misconduct, as well as violations of federal and state
racketeering laws. Three of the pending cases include claims for alleged personal injury arising
from exposure to Benlate® 50DF and/or Benlate®WP. Twenty-eight of the pending cases
include claims for alleged damage to shrimping operations from Benlate® OD. . . . DuPont does
not believe that Benlate® caused the damages alleged in these cases and denies the
allegations of fraud and misconduct. DuPont continues to defend itself in ongoing matters.1. In
regard to the amount of the recognized liability for the Benlate lawsuits, DuPont discloses that
the liability “is not reduced by the amounts of any expected insurance recoveries.”Why isn’t the
amount of the liability reduced by the amount of expected insurance recoveries?2. In regard to
the recognition of liabilities for environmental cleanup, DuPont discloses the following: “Accrued
liabilities do not include claims against third parties and are not discounted.” Does this policy
increase or decrease the recognized amounts of the recorded liabilities? Explain.3. Assume that
DuPont spends $10 million cash on an environmental project. What is the appropriate journal
entry, assuming that no liability for the environmental project had previously been
recognized?View Solution:
In the late 1980s DuPont acknowledged that one of its
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