The Magician$$s Wand Company is being sued by a magician for selling him a faulty wand that caused the wizard defamation and personal brand damage. The maximum amount of damages that could be paid is $$50,000.$The Magician$$s Wand Company$$s in$-$house lawyers expect that the lawsuit will likely be settled prior to litigation and they reliably estimate that the settlement would cost the company $$20,000.$

They are $80\%$ certain of this outcome$$this outcome is more likely than not to occur, based on the company's present obligations.

The company anticipates the settlement to occur in $2022.$ How should they record the pending litigation as of December $31,2021?$

Group of answer choices

They should record an expense and a liability for $$20,000.$

They should record an expense and a liability for $$50,000.$

They should record an expense and an asset for $$20,000.$

They should record an expense and an asset for $$50,000.$

They should not record the pending litigation in the financial statements at all.