As the new chief financial officer (CFO) for a tobacco company, you are required to review the company’s contingencies. Many lawsuits are in different stages and categories, and they include both class-action and individual plaintiff cases. Some contingencies for which decisions are required are as follows:
1. An appeal is pending regarding the verdict of a lawsuit that awarded $3 million in damages to an individual. In like cases, the appeal has not been successful.
2. A class-action suit, the only one of its kind, is in its second phase of multiple expected phases, and damages of $70 billion have been requested.
3. The tobacco company has a suit against a competitor for infringing on a patent. The company’s lawyers believe it will be won, with a resulting $2 million payment and recovery of all legal expenses.
How would you record and disclose these items?