Reporting Litigation Contingencies Koll's Company is preparing its annual financial statements at December 31, 2020. During 2020, a customer fell while riding on the escalator and has filed a lawsuit for $150,000 because of a claimed back injury. The lawyer employed by the company has carefully assessed all of the implications. If the suit is lost, their attorney's reasonable estimate is that the $150,000 will be assessed by the court. Accounting Treatment of a Contingency Settlement of a Contingency How should the contingency be handled during 2020 in each of the following three separate cases? Choose the most appropriate accounting treatment from the following options: a. Accrue potential loss in the income statement. b. Disclose potential loss in the notes accompanying the financial statements. c. Do not accrue or disclose the potential loss in the financial statements. d. Either a or b. e. Either b or c. 1. Assume that the attorney and the management concluded that it is reasonably possible that the company will be liable. 2. Assume instead, that the attorney, the independent accountant, and management have reluctantly concluded that it is probable that the suit will be successful. 3. Assume that the conclusion of the legal counsel and management is that the chance of a contingency loss is remote. They believe the suit is without merit.