On October 1, 2010, Holmgren Chemical was identified as a potentially responsible party by the Environmental

On October 1, 2010, Holmgren Chemical was identified as a potentially responsible party by the Environmental Protection Agency. Holmgren’s management along with its counsel have concluded that it is
probable that Holmgren will be responsible for damages, and a reasonable
estimate of these damages is $6,000,000. Holmgren’s insurance policy of
$9,000,000 has a deductible clause of $500,000. How should Holmgren Chemical
report this information in its financial statements at December 31, 2010?

 

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