Response to the following problem:
The following legal claims exist for Kalamazoo Co. Identify the accounting treatment for each claim as either (a) a liability that is recorded or (b) an item described in notes to its financial statements.
1. Kalamazoo (defendant) estimates that a pending lawsuit could result in damages of $1,000,000; it is reasonably possible that the plaintiff will win the case.
2. Kalamazoo faces a probable loss on a pending lawsuit; the amount is not reasonably estimable.
3. Kalamazoo estimates damages in a case at $2,500,000 with a high probability of losing the case.