Authors Academic Publishing faces three potential contingency situations, described below. Authors fiscal year ends December 31, 2012. Determine the appropriate means of reporting each situation for the year ended December 31, 2012, and record any necessary entries.

Required:

1.

In August 2012, a worker was injured in an accident, partially as a result of his own negligence. The worker has sued the company for $1 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 $310,000 to $520,000.

General Journal

Debit

Credit

(Click to select)Contingent liabilityUnearned revenueLossGainAccounts payableCashAccounts receivableNo journal entry required

(Click to select)GainNo journal entry requiredContingent liabilityCashAccounts receivableAccounts payableUnearned revenueLoss

A suit for breach of contract seeking damages of $2,100,000 was filed by an author on October 4, 2012. Legal counsel believes an unfavorable outcome is probable. A reasonable estimate of the award to the plaintiff is between $1.2 million and $1.7 million. No amount within this range is a better estimate of potential damages than any other amount.

General Journal

Debit

Credit

(Click to select)Accounts payableNo journal entry requiredContingent liabilityUnearned revenueAccounts receivableCashLossGain

(Click to select)Accounts payableLossAccounts receivableGainCashNo journal entry requiredContingent liabilityUnearned revenue

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.

General Journal	Debit	Credit
(Click to select)Contingent liabilityCashUnearned revenueNo journal entry requiredGainAccounts receivableAccounts payableLoss
(Click to select)LossUnearned revenueAccounts payableNo journal entry requiredCashAccounts receivableGainContingent liability