E 13-15 Various transactions involving contingencies LOS LO6 The following selected transactions relate to Classical Tool Makers which began operations in July 2012. Classical's financial year ends on December 31. Financial statements are published in April 2013. Required: Prepare the appropriate journal entries to record any amounts that should be recorded as a result of each transaction and indicate whether a disclosure note is indicated. 1. Classical's products carry a one-year warranty against manufacturer's defects. Based on previous experience, Warranty costs are expected to approximate 4% of sales. Sales were $2 million (all credit) for 2012. Actual Warranty expenditures were $30,800 and were recorded as warranty expense when incurred. 2. In December 2012, a state filed suit against Classical, seeking penalties for violations of clean air laws. On January 23, 2013, Classical reached a settlement with state authorities to pay $1.5 million in penalties. 3. Classical is the plaintiff in a $4 million lawsuit filed against a supplier. The suit is in final appeal and lawyers advise that it is virtually certain that Classical will win the case and be awarded $2.5 million. 4. In November 2012, Classical became aware of a design flaw in an industrial saw that poses a potential electrical hazard. A product recall appears unavoidable. Such an action would likely cost the company $500,000