Authors Academic Press faces three potential contingency situations, described below. Authors’ fiscal year ends December 31, 2021.

Required:

Determine the appropriate means of reporting each situation for the year ended December 31, 2021, and record any necessary entries. Explain your reasoning.

1. In August 2021, a worker was injured in an accident, partially as a result of his own negligence. The worker has sued the company for $1.2 million. Legal counsel believes it is reasonably possible that the outcome of the suit will be unfavorable, and that the settlement would cost the company from $300,000 to $600,000.

2. A suit for breach of contract seeking damages of $3 million was filed by an author on October 4, 2021. Legal counsel believes an unfavorable outcome is probable. A reasonable estimate of the award to the plaintiff is between $1.5 million and $2.25 million. No amount within this range is a better estimate of potential damages than any other amount.

3. Authors is the plaintiff in a pending court case. Its lawyers believe it is probable that Authors will be awarded damages of $3 million.