Accounting treatment for contingencies Analyze the following independent situations

a. McKinney Inc. is being sued by a former employee. McKinney believes that there is a remote chance that the employer will win. The employee is suing McKinney for damages of $1,000 b. Reeves Oil Refinery had a gas explosion on one of its oil rigs, reeves believes it is likely that it will have to pay environmental clean-up costs and damages in the future due to the gas explosion. Reeves cannot estimate the amount of the damages.

c. Love Enterprise estimates that it will have to pay $20,000 in warranty repairs next year.

Determine how each contingency should be treated.