What is a proper accounting treatment for the situation

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A suit for breach of contract seeking damages of $2,400,000 was filed by an author against Henderson Co. on October 4, 2014. Henderson's legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the award to the plaintiff is between $800,000 and $1,800,000. No amount within this range is a better estimate of potential damages than any other amount.

Problem 1:
It is now December 31, 2014. What is a proper accounting treatment for the above situation?

Group of answer choices

Option 1: Henderson Co. should accrue a continent loss of $1,800,000.

Option 2: Henderson Co. should disclose in the notes to the financial statements the existence of a possible contingent liability related to the lawsuit.

Option 3: Henderson Co. should accrue a continent loss of $800,000.

Option 4: Henderson Co. should accrue a continent loss of $1,300,000.

Reference no: EM132741617

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