Eresented$$below$$are$$three$$independent$$situations$.$Answer$$the question$$at$$the$$end$$of$$each$$situation$.1.$During$2025,$Salt$-$n$-$Pepa$$Inc$.$became$$involved$$in$$a$$tax$$dispute$$with$$the$$IRS$.$Salt$-$n$-$Pepa$$s$$attor$-$ neys$$have$$indicated$$that$$they$$believe$$it$$is$$probable$$that$$Salt$-$n$-$Pepa$$will$$lose$$this$$dispute$.$They$$also believe$$that$$Salt$-$n$-$Pepa$$will$$have$$to$$pay$$the$$IRS$$between$$$$900,000$and$$$$1,400,000.$After$$the$2025$ financial$$statements$$were$$issued$,$the$$case$$was$$settled$$with$$the$$IRS$$for$$$$1,200,000.$What$$amount$,$if any,$$should$$be$$reported$$as$$a$$liability$$for$$this$$contingency$$as$$of$$December$31,2025?2.$On$$October$1,2025,$Jackson$$Chemical$$was$$identified$$as$$a$$potentially$$responsible$$party$$by the$$Environmental$$Protection$$Agency$.$Jackson$$s$$management$$along$$with$$its$$counsel$$have concluded$$that$$it$$is$$probable$$that$$Jackson$$will$$be$$responsible$$for$$damages$,$and$$a$$reasonable$$estimate of$$these$$damages$$is$$$$5,000,000.$Jackson$$s$$insurance$$policy$$of$$$$9,000,000$has$$a$$deductible$$clause$$of $$500,000.$How$$should$$Jackson$$Chemical$$report$$this$$information$$in$$its$$financial$$statements$$at

entries$$for$$Crow$$assuming$$that$$the$$warranties$$are$$not$$an$$integral$$part$$of$$the$$sale$($a service$-$type$$warranty$).$Assume$$that$$of$$the$$sales$$total$,$$$56,000$relates$$to$$sales$$of$$warranty$$contracts$.$ Warranty$$costs$$incurred$$in$2025$were$$$$20,000.$Estimate$$revenues$$to$$be$$recognized$$on$$a$$straight$-$line