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King & Wadsworth Inc. are sued for construction defect in residential houses they built. Their attorneys, Ennis & Komarek, indicate that the loss is reasonably possible and they estimate that it will end up costing King & Wadsworth between $200,000 and $350,000. What amount should be recorded in the financial statements?
Liability of $200,000
Liability of $350,000
No journal entry required, but disclose the matter fully in the footnotes
No entry or disclosure required.
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