Exercise Set B: $8$ LO $12\mathrm{.}3$ Following is the unadjusted trial balance for Pens Unlimited on December $31,2017.$

You are also given the following supplemental information: A pending lawsuit, claiming $$4,200$ in damages, is considered likely to favor the plaintiff and can be reasonably estimated. Pens Unlimited believes a customer may win a lawsuit for $$5,000$ in damages, but the outcome is only reasonably possible to occur. Pens Unlimited records warranty estimates on the basis of $2\%$ of annual sales revenue.

Using the unadjusted trial balance and supplemental information for Pens Unlimited, construct an income statement for the year ended December $31,2017.$ Pay particular attention to expenses resulting from contingencies.

Construct a balance sheet, for December $31,2017,$ from the given unadjusted trial balance, supplemental information, and income statement for Pens Unlimited. Pay particular attention to contingent liabilities.

Prepare any necessary contingent liability note disclosures for Pens Unlimited. Only give one to three sentences for each contingency note disclosure.