An attorney is consulting a company that the company will have to pay $10,000 for

defective product. The business situation of the company is legally required to make a provision on December 31, 20x7. However, the following year, attorneys found that the damage could result in compensation of about $50,000.

Required: How is this situation recognized and presented in the financial statements for December 31, 20x7 and December 31, 20x8?