Question: E8-29B. (Learning Objective 5: Report a contingent liability) Diamond Security Systems revenues for 2018 totaled $27.5 million. As with most companies, Diamond is a defendant

E8-29B. (Learning Objective 5: Report a contingent liability) Diamond Security Systems revenues for 2018 totaled $27.5 million. As with most companies, Diamond is a defendant in lawsuits related to its products. Note 14 of the Diamond annual report for 2018 reported the following: 14. Contingencies The company is involved in various legal proceedings.... It is the Company's policy to accrue for amounts related to these legal matters if it is probable that a liability has been incurred and an amount is reasonably estimable. Requirements 1. Suppose Diamond's lawyers believe that a significant legal judgment against the company is reasonably possible. How should Diamond report this situation in its financial statements? 2. Suppose Diamond's lawyers believe it is probable that a $2.8 million judgment will be rendered against the company. In general terms, how would this situation be reported in Diamond's financial statements (using U.S. GAAP)

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