Record and disclose contingent liabilities.

E$11\mathrm{.}6($LO $2),$ K Gallardo Co$.$ is involved in a lawsuit as a result of an accident that took place September $5,2022.$ The lawsuit was filed on November $1,2022,$ and claims damages of $\backslash$$$1,000,000.$

Instructions

a$.$ At December $31,2022,$ Gallardo's attorneys feel it is remote that Gallardo will lose the lawsuit. How should the company account for the effects of the lawsuit?

b$.$ Assume instead that at December $31,2022,$ Gallardo's attorneys feel it is probable that Gallardo will lose the lawsuit and be required to pay $\backslash (\backslash$$ $1,000,000\backslash ).$ How should the company account for this lawsuit?

c$.$ Assume instead that at December $31,2022,$ Gallardo's attorneys feel it is reasonably possible that Gallardo could lose the lawsuit and be required to pay $\backslash (\backslash$$ $1,000,000\backslash ).$ How should the company account for this lawsuit?