In 2000, Amber assigned a number of leases to Bell's Inc. and Home Stores, Inc. as part of the sale of the Company s former Eastern divisions. Amber is contingently liable if Bell's and Home are unable to continue making rental payments on these leases. In 2006, Amber recorded a pretax charge to earnings of $42.7 million to recognize the estimated lease liabilities associated with the Bell's and Home bankruptcies and for a single lease from Amber's former Georgia division. In 2009, Bell's began the liquidation process and Home emerged from bankruptcy and, based on the resolution of various leases, Amber reversed $12.1 million of this accrual.
Explain the accounting principle(s) that required Amber to record the $42.7 million charge in 2006 and the $12.1 million reversal in 2009.
This question was asked on May 06, 2010 and answered on May 07, 2010.
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