Harvey Bazaar the town drunk was celebrating an early Christmas on December 21,2020 and had a "liquid luncheon" with several of his friends. After having consumed six martinis and seven glasses of white wine, Bazaar began walking home. His home is located approximately two miles from the restaurant. As he was walking home, he noticed a "shortcut" through the parking lot of Edex Controls. As he was crossing the parking lot, he slipped and fell breaking his legs and three ribs. His attorney filed a lawsuit against Edex on January 7, 2021. The lawsuit claims damages for personal injury and mental suffering in the amount of $10 million. This claim is material to Edex.

1. You are the auditor for Edex, and you receive a response from Edex's attorneys indicating that in their opinion it is too early to tell as to whether the plaintiff would preval. How should Edex deal with this matter in their 2020 financial statements?

2. Assume the same factors in A above, except that Bazaar threatens to sue Edex but that no lawsuit has been filed as of February 25, 2021, the date on which Edex releases its financial statements. Edex's lawyers have advised you that it's probable that Bazaar will sue Edex and that (Edex's lawyers) have no idea as to what the outcome would be. How should this be handled in Edex's 2020 financial statements?