Scenario # 1

The oil company has contaminated soil and has a history of cleaning up contaminations if required by law. It is virtually certain there will be a law requiring such cleanup shortly after year-end.

Environmental Loss Contingencies
410-30-05-25 Although environmental remediation liabilities is not one of the examples discussed in paragraph 450-20-05-10, environmental remediation liabilities are loss contingencies, and the discussion in paragraphs 450-20-55-10 through 55-17 can be useful in understanding the requirements of Subtopic 450-20 as they relate to environmental remediation liabilities. SFAS No. 5 Accounting for Contingencies
INTRODUCTION
1. For the purpose of this Statement, a contingency is defined as an existing condition, situation, or set of circumstances involving uncertainty as to possible gain (hereinafter a "gain contingency") or loss (hereinafter a "loss contingency ") to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur. Resolution of the uncertainty may confirm the acquisition of an asset or the reduction of a liability orthe loss or impairment of an asset or the incurrence of a liability. Litigation, Claims, and Assessments
450-20-55-10 The following factors should be considered in determining whether accrual and/or disclosure is required with respect to pending or threatened litigation and actual or possible claims and assessments:
• a. The period in which the underlying cause (that is, the cause for action) of the pending or threatened litigation or of the actual or possible claim or assessment occurred
• b. The degree of probability of an unfavorable outcome
• c. The ability to make a reasonable estimate of the amount of loss.
Examples 1 through 2 (see paragraphs 450-20-55-18 through 55-35) illustrate the consideration of these factors in determining