(9) a. b. C. d. (10) a. b. C. d. In November 2016, state government authorities filed suit against Scarlet Industries, asking civil penalties and injunctive relief for violations of clean water laws. On December 31, 2016, Scarlet's lawyers indicated that the likelihood of losing the lawsuit was possible but not probable. On February 3, 2017, Scarlet reached a settlement with state authorities to pay cash $4.2 million in penalties. Which of the following statements is appropriate for Scarlet Industries: Scarlet should prepare a journal entry to record a loss from litigation $4.2 million and cash payment of $4.2 million for the 2016 financial statements. There is no journal entry for the 2016 financial statements; Scarlet should record a loss from litigation $4.2 million and cash payment of $4.2 million for the 2017 financial statements. Scarlet should prepare a journal entry to record a loss from litigation $4.2 million and the accrued litigation liability of $4.2 million for the 2016 financial statements. Scarlet should record the accrued litigation liability of $4.2 million for the 2016 financial statements and record the litigation loss and cash payment of $4.2 million for the 2017 financial statements. Scarlet is the plaintiff in a $45 million lawsuit filed against a customer for costs and lost profits from the contracts signed in October 2016 but rejected by the customer in January 2017. The lawsuit is in final appeal and lawyers advise that it is virtually certain that Scarlet will be awarded $30 million. By March 15, 2017 (i.e., the issuance date of the 2016 financial statements), the final outcome is not known yet. Which of the following statements is appropriate for Scarlet Industries: Scarlet should prepare a journal entry to accrue a litigation gain of $30 million for 2016. Scarlet should prepare a journal entry to accrue a litigation gain of $45 million for 2016. Scarlet should prepare a journal entry to record a deferred revenue (gain) of $30 million for 2016 and a revenue (gain) of $30 million for 2017 when the final outcome is known. Scarlet should not make any journal entry for this lawsuit for 2016 and should only make a footnote disclosure for 2016.