In each of the following cases, make the necessary journal entry, if any. If no journal entry is necessary, describe how the item would be reported in the financial statements.
1. The company has sued another company for patent infringement and won a preliminary judgment of $120,000 in the case. This judgment is under appeal. The company’s attorneys agree that it is possible (not probable) that the sued company will win this appeal
2. The company has long owned a manufacturing site that has now been discovered to be contaminated with toxic waste. The company has acknowledged its responsibility for the contamination. An initial cleanup feasibility study has shown that it will cost at least $500,000 to clean up the toxic waste.
3. The company has been sued for patent infringement and lost the case. A preliminary judgment of $120,000 was issued and is under appeal. The company’s attorneys agree that it is possible (not probable) that the company will lose this appeal.