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Macromedia, Inc. is the original maker of shockwave and flash technologies. One of its annual reports indicated that a lawsuit had been filed against the company and five of its former officers for securities fraud in connection with allegedly making false or misleading statements about its financial results. The lawsuit was settled out of court, as described in the following note:

Legal

The settlement amount was $ 48.0 million, of which approximately $ 19.5 million was paid by insurance. As a result, the Company recorded a $ 28.5 million charge as a component of other income (expense) in its consolidated statements of operations.

Required:

Macromedia did not record a liability or include a note to the financial statements prior to settling the lawsuit. Which of the following best describes the estimated likelihood of loss prior to settling the lawsuit: (a) probable, (b) reasonably possible, or (c) remote?

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