Consider the following independent situations. The underlined entity is the reporting entity.

1. Call Centre Inc who follows (ASPE) sued ABC Feed Ltd. for $10 million alleging breach of contract. ABC's legal counsel estimates that Call's likelihood of success is about 80%. Based on its experience with cases of this nature, the law firm estimates that, if successful, the litigants will be awarded $8,800,000 to $9,000,000, with all payouts in this range being equally likely.

2. Deana Williams broke her leg when she tripped on an uneven floor surface in Groton Co.'s office who follow ASPE. On the advice of legal counsel, Groton has offered Williams $140,000 to settle her $275,000 lawsuit. It is unknown whether Williams will accept the settlement offer. Groton's legal counsel estimates that Williams has a 90% probability of success, and that if successful, she will be awarded $230,000.

Required:

a. For each of the situations, indicate whether the appropriate accounting treatment is to:

A. Recognize an asset or liability.

B. Disclose the details of the contingency in the notes to the financial statements.

C. Neither provide for the item nor disclose the circumstances in the notes to the financial statements.

b. For each situation that requires the recognition of an asset or liability, record the journal entry.