Vaughn Shoes Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $813000. What is the required journal entry as a result of this litigation?

Debit Litigation Expense for $813000 and credit Litigation liability for $813000.

Debit Litigation Expense for $487800 and credit Litigation Liability for $487800.

No journal entry is required.

Debit Litigation Expense for $325200 and credit Litigation Liability for $325200.