During the current year, P & P Products was involved in two lawsuits. In the first lawsuit, P & P Products was sued by two employees who claimed that they were injured by potentially defective containers that came apart during loading. The company's attorney has determined that there is a high probability that the jury will grant punitive damages of $1,000,000. In the second lawsuit, P & P Products sued a vendor for failure to comply with design specifications, which resulted in the faulty containers that caused the injuries listed in the first lawsuit. P & P Products is suing for $2,500,000 in damages to cover payment for the first lawsuit and damage to the company's reputation. The company's attorney is confident that the company will be successful. Required:
a. How should P & P account for the first lawsuit?
b. How should P & P account for the second lawsuit?