A lawsuit is outstanding with a customer regarding a faulty snowboard design that resulted in a severe injury to a 25 year old fashioned snowboarder and she is claiming $2 million in damaged. Discussions with the lawyer involved in the case determined the cause to be that the snowboarder had custom snowboard boots designed that didn't click into the board effectively. Belton snowboards is claiming no responsibility for the faulty design and the lawyer has indicated that a required settlement is not likely. You obtain second opinion from another law firm that engages with Belton and they indicate that based on previous lawsuits of this type a $50,000 settlement is likely in order for Belton to save a future legal costs and avoid negative press. Which of the following is true regarding the treatment of this incident on the year end financial statement Since the lawsuit is not likely to result in a settlement and the lawyer who is handling the lawsuit has indicated a required settlement is not likely, no adjustment is required and no disclosure is required Record the estimated $50,000 settlement expense and a $50,000 contingent A $2 million contingent liability and corresponding expense should be recognized