Western Manufacturing is involved with several potential

contingent liabilities Your

Western Manufacturing is involved with several potential contingent liabilities. Your assignment
is to draft the appropriate accounting treatment for each situation described below. Western's
fiscal year-end is December 31, 2012, and the financial statements will be issued in early
February 2013.a. During 2012, Western experienced labor disputes at three of its plants.
Management hopes an agreement will soon be reached. However, negotiations between the
company and the unions have not produced an acceptable settlement, and employee strikes
are currently under way. It is virtually certain that material costs will be incurred, but the amount
of possible costs cannot be reasonably estimated.b. Western warrants most products it sells
against defects in materials and workmanship for a period of a year. Based on its experience
with previous product introductions, warranty costs are expected to approximate 2% of sales. A
new product introduced in 2012 had sales of $2 million, and actual warranty expenditures
incurred so far on the product are $25,000. The only entry made so far relating to warranties on
this new product was to debit Warranty Expense $25,000 and credit Cash $25,000.c. Western
is involved in a suit filed in January 2013 by Crump Holdings seeking $88 million, as an
adjustment to the purchase price in connection with the company's sale of its textile business in
2012. The suit alleges that Western misstated the assets and liabilities used to calculate the
purchase price for the textile division. Legal counsel advises that it is reasonably possible that
Western could lose up to $88 million.Required:In a memo, describe the appropriate means of
reporting each situation and explain your reasoning.View Solution: Western Manufacturing is
involved with several potential contingent liabilities Your
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