that it is probable that Finley will prevail and be awarded $25 million.
3. In July 2012, the State of Arkansas filed suit against Barone, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On February 12, 2014, Barone reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $13 million will be required to cover the cost of violations. Barone believes that the ultimate settlement of this claim will not have a material adverse effect on the company.4. Barone is involved in a lawsuit resulting from a dispute with a customer. On January 5, 2014, judgment was rendered against Barone in the amount of $16 million plus interest, a total of $18 million. Barone plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company.Required:141.Prepare the appropriate adjusting entry to adjust warranty expense on December 31, 2013. Show calculations. At the beginning of 2013, Scarlet Industries began offering a three-year warranty on its products. The warranty program was expected to cost Scarlet 2% of net sales, approximately equally over the three-year warranty period. Net sales made under warranty in 2013 were $270 million. Thirteen percent of the units sold were returned in 2013 and repaired or replaced at a cost of $2 million. This amount was debited to warranty expense as incurred.Required: