Question

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Dow Chemical Company provides chemical, plastic, and agricultural products and services to various consumer markets. The following excerpt is taken from the disclosure notes of Dow’s annual report.
DOW CHEMICAL
Notes to the Financial Statements (excerpt)
Dow Chemical had accrued obligations of $381 million for environmental remediation and restoration costs, including $40 million for the remediation of Superfund sites. This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Company has accrued liabilities, although the ultimate cost with respect to these particular matters could range up to twice that amount. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and evolving technologies for handling site remediation and restoration.
3. How did Dow record the $381 million? (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in dollars, not in millions. (i.e. 5 should be entered as 5,000,000).)
Journal entry worksheet:
Record the contingent liability if needed.
Transaction General Journal Debit Credit

Answer 1

Dow Chemical would record the $381 million for environmental remediation and restoration costs by debiting the Environmental Remediation and Restoration Costs account and crediting the Accrued Liabilities account.

Step-by-step explanation:

To record the $381 million for environmental remediation and restoration costs, Dow Chemical would make the following journal entry:

Debit: Environmental Remediation and Restoration Costs - $381 million
Credit: Accrued Liabilities - $381 million

This entry is made to recognize the estimated obligation for the environmental remediation and restoration costs. Dow Chemical has accrued a liability on its balance sheet to reflect the expected costs, which will be paid in the future.