At the end of 2025, the following information is available for Great Adventures.

• Additional interest for five months needs to be accrued on the $30,000, 6% note payable obtained on August 1, 2024. Recall that annual interest is paid each July 31.
• Assume that $10,000 of the $30,000 note discussed above is due next year. Record the entry to reclassify the current portion of the long-term note.
• By the end of the year, $20,000 in gift cards have been redeemed. The company had sold gift cards of $25,000 during the year and recorded those as Deferred Revenue.
• Great Adventures is a defendant in litigation involving a biking accident during one of its adventure races. The company believes the likelihood of payment occurring is probable, and the estimated amount to be paid is $12,000.
• For sales of MU watches, Great Adventures offers a warranty against defect for one year. At the end of the year, the company estimates future warranty costs to be $4,000.

1. Record each of the transactions above on December 31, 2025.

2. If the likelihood of payment for the litigation is determined to be reasonably possible, what should Great Adventures record for this possible payment.