For each independent situation:

1. A former employee of Melvin Minimarket Inc. sued the company for $900,000, alleging that the company owner harassed her. Melvin's lawyers suggest that the lawsuit has a 30-40% probability of success and that, if successful, the plaintiff will be awarded between $400,000 and $500,000.

2. Leduc Pyrotechnics Ltd. received a $15,000 fee to guarantee the $800,000 bank indebtedness of Kenora Fireworks Inc. The fair value of the guarantee is initially estimated to be $15,000.

3. Montomery Syringes Co. sued a competitor for $800,000, alleging corporate espionage. Montomery's legal counsel believes that the company will be successful and will be awarded somewhere in the range of $650,000 to $800,000.

Required:

Describe how the event should be dealt with in the financial statements and explain why. Prepare all required journal entries.