Final answer:
The Hanna Company's lawsuit situation should be disclosed in a note to the financial statements, just like Alijah Oil Refinery's gas explosion situation where the damages cannot be estimated. Lambert Enterprises should recognize and disclose the estimated liability for warranty repairs in the financial statements.
Step-by-step explanation:
a. In the case of Hanna Company being sued by a former employee, the contingency should be treated by disclosing the situation in a note to the financial statements. Hanna Company believes there is a remote chance of losing the case, but since the employee is suing for damages of $20,000, it is prudent to inform the financial statement users of the potential liability.
b. For Alijah Oil Refinery's gas explosion situation, where it is likely that environmental clean-up costs and damages will have to be paid in the future, but the amount cannot be estimated, the contingency should also be described in a note to the financial statements to inform the users of the potential liability.
c. Lastly, for Lambert Enterprises' estimate of $20,000 warranty repairs next year, it is appropriate to recognize and disclose this estimated liability in the financial statements.