How would Kraft account for the contingent liability arising from a class action lawsuit alleging that it takes more than the advertised 3 ½ minutes to prepare Velveeta Microwaveable Shells & Cheese cups?

Picture of a bowl of Velveeta Shells & Cheese

On the packaging of Velveeta Microwaveable Shells & Cheese cups, it says that it takes three and a half minutes to cook to the right consistency of cheese. However, for one upset Florida woman, it seems to be untrue. According to the South Florida Sun-Sentinel, Amanda Ramirez has filed a proposed class-action lawsuit accusing Kraft Heinz Foods Company of breaking both state and federal laws with its misleading labeling. According to Ramirez’s claim, the preparation of Velveeta Microwavable Shells & Cheese cups, which includes removing the top and cheese sauce packet as well as adding water, adds much more time to the process beyond the microwave time of three and a half minutes. According to the lawsuit, Ramirez would not have bought the Shells & Cheese cups if she had realized it would take longer to prepare than stated. She anticipates the class of victims to number more than 100 and is requesting more than $5 million in damages.

View a quick tutorial video about contingent liabilities at this link and then answer the following questions.

Questions

  1. What is a contingent liability?
  2. What are the three potential accounting treatments for a contingent liability?
  3. In your opinion, how do you think Kraft will treat this contingent liability?

Copyright 2022 Wendy M. Tietz, LLC



About Dr. Wendy Tietz, CPA, CMA, CSCA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Education.

2 Responses to “How would Kraft account for the contingent liability arising from a class action lawsuit alleging that it takes more than the advertised 3 ½ minutes to prepare Velveeta Microwaveable Shells & Cheese cups?”

  1. This is great! We just reviewed the current liability chapter in my fundamentals class and I pulled up this case.

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