A clarifying event before financial statements are issued, but after the year$-$e nd$,$ can be used to determine how a contingency is reported. An unasserted suit, claim, or assessment warrants accrual or disclosure if it is probable it will be asserted. A gain contingency is a contingency that might result in a gain. A gain contingency is not recognized until it actually is realized.

Barry Company has a calendar year$-$end. On December $15,$ Year $1,$ a customer was injured using a product manufactured by Barry. That customer files a lawsuit against Barry on January $15,$ Year $2.$ On February $15,$ Year $2,$ Barry$$s attorney advises Barry to settle the claim for $$100,000$ because a loss in that amount is probable and material. Barry has not yet distributed its Year $1$ financial statements. What must Barry do with regards to those financial statements?

$*$Nothing$.$

$*$No accrual is necessary but the loss contingency must be disclosed in the notes.$$

$*$Accrue the loss as of December $31,$ Year $1$ and, because it has been accrued, disclosure is not required.$$

$*$Accrue the loss as of December $31,$ and disclose the lawsuit in the notes to the financial statements.