a Accounting 2 (Class 1) Q- Search in Document Home Review 2+ Share X Insert Design inherit B I U Layout References Mailings 12 AA AA E se X2 x A A E View E = + 1 . Paste = 3 AalbCcDoce Marmel Aa Bb Dee AaBbcc Aabbccdee AaBUCODE MEELDdEe AaBbc Aabbcodec No Suoming Heading Hunting 2 aatiling wailings The Stubide Styles P10.8A (LO 2, 4) AP Mega Company, a public company, is preparing its financial statements for the year ended December 31, 2021. It is now January 31, 2022, and the following situations are being reviewed to determine the appropriate accounting treatment: Discuss reporting of contingencies and record provisions. 1. Mega Company is being sued for $4 million for a possible malfunction of one of its products. In July 2021, a customer suffered a serious injury while operating the product. The company is vigorously defending itself as it is clear the customer was intoxicated when using the product. 2. In a separate lawsuit, Mega is being sued for $3 million by an employee who was injured on the job in February 2021. It is likely that the company will lose this lawsuit, but a reasonable estimate cannot be made of the amount of the expected settlement. On December 7, 2021, a potential customer injured himself when he slipped on the floor in the foyer of Mega Company's office building. Mega Company did not have appropriate floor mats in place and melting snow from the customer's boots made the floor very dangerous. Mega has negotiated a potential settlement of $200,000 with the individual's lawyer. Instructions For each of the above situations, recommend whether Mega Company should: (1) make an accrual in it s December 31, 2021, financial statements; (2) disclose the situation in the notes to the financial statements; or (3) not report it. Provide a rationale for your recommendations. 827 Words Ox E 5 - Page 2 of 2 + 229%