Barclay Systems' revenues for 2016 totaled $26.2 million. As with most companies, Barclay is a defendant in

Question:

Barclay Systems' revenues for 2016 totaled $26.2 million. As with most companies, Barclay is a defendant in lawsuits related to its products. Note 14 of the Barclay annual report for 2016 reported the following:
14. Contingencies
The company is involved in various legal proceedings.... It is the Company's policy to accrue for amounts related to these legal matters if it is probable that a liability has been incurred and an amount is reasonably estimable.
Requirements
1. Suppose Barclay's lawyers believe that a significant legal judgment against the company is reasonably possible. How should Barclay report this situation in its financial statements?
2. Suppose Barclay's lawyers believe it is probable that a $2.0 million judgment will be rendered against the company. Report this situation in Barclay's financial statements. Journalize any entry requirements by Explanations are not required.
GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...