Farley Motors, a motorcycle manufacturer, had the following contingencies.
a. Farley estimates that it is reasonably possible but not likely that it will lose a cur-rent lawsuit. Farley’s attorneys estimate the potential loss will be $ 1,200,000.
b. Farley received notice that it was being sued. Farley considers this lawsuit to be frivolous.
c. Farley is currently the defendant in a lawsuit. Farley believes it is likely that it will lose the lawsuit and estimates the damages to be paid will be $ 80,000.
Determine the appropriate accounting treatment for each of the situations Farley is facing.