CONTINGENCIES:

Hanover Industries manufactures and sells food products and food processing machinery. While preparing the December 31, 2016, financial statements for Hanover, the following information was discovered relating to contingencies and possible adjustments to liabilities. Hanover's 2016 financial statements were issued on April 1, 2017.

1. On November 12, 2016, a former employee filed a lawsuit against Hanover alleging age discrimination and asking for damages of $750,000. At December 31, 2016, Hanover'sattorney indicated that the likelihood of losing the lawsuit was possible but not probable. On March 5, 2017, Hanover agreed to pay the former employee $125,000 in return for withdrawing the lawsuit.
2. Hanover believes there is a possibility a service provider may claim that it has been undercharged for outsourcing a processing service based on verbal indications of the company's interpretation of a negotiated rate. The service provider has not yet made a claim for additional fees as of April 2017, but Hanover feels it will. Hanover'saccountants and legal counsel believe the charges were appropriate but that if an assessment is made, there is a reasonable possibility that subsequent court action would result in an additional tax liability of $55,000.
3. Hanover grants a two-year warranty for each processing machine sold. Past experience indicates that the costs of satisfying warranties are approximately 2% of sales. During 2016, sales of processing machines totaled $21,300,000. 2016 expenditures for warranty repair costs were $178,000 related to 2016 sales and $220,000 related to 2015 sales. The January 1, 2016, balance of the warranty liability account was $250,000.
4. Hanover is the plaintiff in a $600,000 lawsuit filed in 2015 against Ansdale Farms for failing to deliver on contracts for produce. The suit is in final appeal. Legal counsel advises that it is probable that Hanover will prevail and will be awarded $300,000(considered a material amount). 1. Determine the appropriate reporting for each situation. Briefly explain your reasoning. 2. Prepare any necessary journal entries and state whether a disclosure note is needed.