Below are two independent situations.

Instructions

Discuss the proper accounting treatment, including any required disclosures, for each situation. Give the rationale for your answers.

1. In August, 2017 a worker was injured in the factory in an accident partially the result of his own negligence. The worker has sued Barkley Co. for $800,000. Counsel believes it is reasonably possible that the outcome of the suit will be unfavorable and that the settlement would cost the company from $250,000 to $500,000.

2. Kroft is involved in a pending court case. Krofts lawyers believe it is probable that Kroft will be awarded damages of $1,000,000.