Knowledge Check $01$

Payson Company filed a lawsuit against Leer Company for $$1$ million. While the financial statements for Payson are being prepared, the company's attorney advises Payson's management that a settlement in the amount of $$500,000$ is probable in the case. The potential settlement is material to Payson's financial position. How should Payson reflect this situation in its financial statements?

$01$:$21$:$38$