Discuss the relationship between the market or effective interest rate of a bond and the stated interest rate under the following three conditions $-a)$ bond sells at par, b$)$ bond sells at a premium and c$)$ bond sells at a discount.

We discussed contingent liabilities in class.

a$.$ Describe the conditions for when a contingent liability must be recorded through a journal entry, when it should be disclosed in the footnotes and when neither a journal entry nor disclosure is required?

b$.$ Assume that Mojito Corporation is sued by Dulcinea, Inc. for $$1,000,000.$ Mojito's attorneys believe that it is probable that the company will lose the suit and have to pay between $$300,000$ and $$400,000$ to Dulcinea. Based on your answer to a$,$ what should Mojito do$?$