Question

The ink-jet printing division of Environmental Printing has grown tremendously in recent years. Assume the following transactions related to the ink-jet division occur during the year ended December 31, 2018.
  
1. Environmental Printing is being sued for $9.7 million by Addamax. Plaintiff alleges that the defendants formed an unlawful joint venture and drove it out of business. The case is expected to go to trial later this year. The likelihood of payment is reasonably possible.

2. Environmental Printing is the plaintiff in an $7.7 million lawsuit filed against a competitor in the high-end color-printer market. Environmental Printing expects to win the case and be awarded between $5.2 and $7.7 million.

3. Environmental Printing recently became aware of a design flaw in one of its ink-jet printers. A product recall appears probable. Such an action would likely cost the company between $370,000 and $770,000.
  
Required:
Record any amounts as a result of each of these contingencies. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answer in dollars, not in millions (i.e., $5.5 million should be entered as 5,500,000).)

Answer 1

		Debit	Credit
1	No journal entry required
2	No journal entry required
3	Loss	370000
	Contingent liability		370000

A contingent liability is recorded only when the chances of occurrence are probable and the amount can be reasonably estimated.

A Contingent gain is not recognized till such gain is actually realized.

As the chance is reasonably possible but not probable in (1) so contingent liability is not recognized

Contingent gain in (2) is not recognized till amount is received.