The company has the following three potential obligations. Describe how each will be reported in the financial statements.

1. The company has guaranteed a loan for one of its suppliers. If the supplier fails to repay the loan, the company will be required to repay it. Currently, the probability of the supplier defaulting on the loan is considered remote.

2. The company has been sued by a group of shareholders who claim that they were deceived by the company’s financial reporting practices. It is possible that the company will lose this lawsuit. 

3. The company is involved in litigation over who must clean up a toxic waste site near one of the company’s factories. It is probable, but not certain, that the company will be required to pay for the cleanup.