Firm K is the auditor of Company J. Company J intends to file their annual report with audited financial statements as of December 31, 2017 with the SEC on February 28th, 2018. An error of $500,000 would be considered material by users of the financial statements. On February 26th, 2018, Company J received a letter from the lawyers of Steve Canseco. The letter states that Mr. Canseco was drinking hot coffee out of a mug produced by Company J on January 15, 2018. The lawyer alleges that the mug broke and the hot coffee spilled all over Mr. Canseco, causing severe burns. Mr. Canseco is suing for $10 million in damages. Company J does not yet know if the event actually transpired, and they therefore do not know whether they will lose the lawsuit, nor do they have a way of determining how much they would expect to pay if they did lose the lawsuit. Company J should not record a journal entry in the 2017 financial statements. Company J should add a disclosure to the 2017 financial statements. Company J should not record a journal entry in the 2017 financial statements. Company J should not add a disclosure to the 2017 financial statements. Company J should record a journal entry in the 2017 financial statements. Company J should add a disclosure to the financial statements. Company J should file a request for filing deadline extension with the SEC, stating that more information is needed on a recent material transaction before the financial statements can be finalized. Firm K is the auditor of Company J. Company J intends to file their annual report with audited financial statements as of December 31, 2017 with the SEC on February 28th, 2018. An error of $500,000 would be considered material by users of the financial statements. On February 20th, 2018, Company J acquired Company W, for a purchase price of $100 million. Company J should not record a journal entry in the 2017 financial statements. Company J should add a disclosure to the 2017 financial statements. Company J should not record a journal entry in the 2017 financial statements. Company J should not add a disclosure to the 2017 financial statements. Company J should record a journal entry in the 2017 financial statements. Company J should add a disclosure to the financial statements. Company J should file a request for filing deadline extension with the SEC, stating that more information is needed on a recent material transaction before the financial statements can be finalized. Background: Firm K is the auditor of Company J. Company J intends to file their annual report with audited financial statements as of December 31, 2017 with the SEC on February 28th, 2018. An error of $500,000 would be considered material by users of the financial statements. On February 23rd, 2018, a jury decided that Company J infringed on Z Corporation's patent in 2015. Company J was ordered to pay Z Corporation $3 million by March 31, 2018. Company J should not record a journal entry in the 2017 financial statements. Company J should add a disclosure to the 2017 financial statements. Company J should not record a journal entry in the 2017 financial statements. Company J should not add a disclosure to the 2017 financial statements. Company J should record a journal entry in the 2017 financial statements. Company J should add a disclosure to the financial statements. Company J should file a request for filing deadline extension with the SEC, stating that more information is needed on a recent material transaction before the financial statements can be finalized