At April 1, 2022, the Food and Drug Administration is in the process of investigating allegations of false marketing claims by Hulkly Muscle Supplements. The FDA has not yet proposed a penalty assessment. Hulkly’s fiscal year ends on December 31, 2021. The company’s financial statements are issued in April 2022.

Required:
For each of the following scenarios, determine the appropriate way to report the situation. Explain your reasoning and prepare any necessary journal entry.
1. Management feels an assessment is reasonably possible, and if an assessment is made, an unfavorable settlement of $13 million is reasonably possible.
2. Management feels an assessment is reasonably possible, and if an assessment is made, an unfavorable settlement of $13 million is probable.
3. Management feels an assessment is probable, and if an assessment is made, an unfavorable settlement of $13 million is reasonably possible.
4. Management feels an assessment is probable, and if an assessment is made, an unfavorable settlement of $13 million is probable.