$($LO $2),$ K Gallardo Co$.$ is involved in a lawsuit as a result of an accident that took place September $5,2022.$ The lawsuit was filed on November $1,2022,$ and claims damages of $$1,000,000.$

Instructions

At December $31,2022,$ Gallardo$$s attorneys feel it is remote that Gallardo will lose the lawsuit. How should the company account for the effects of the lawsuit?

Assume instead that at December $31,2022,$ Gallardo$$s attorneys feel it is probable that Gallardo will lose the lawsuit and be required to pay $$1,000,000.$ How should the company account for this lawsuit?

Assume instead that at December $31,2022,$ Gallardo$$s attorneys feel it is reasonably possible that Gallardo could lose the lawsuit and be required to pay $$1,000,000.$ How should the company account for this lawsuit?

Prepare the current liabilities section of the balance sheet.