Sandy Shoes Fool Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $800,000. What is the required journal entry as a result of this litigation? 1. Debit Litigation Expense for $800,000 and credit Litigation liability for $800,000. 2. Debit Litigation Expense for $320,000 and credit Litigation Liability for $320,000. 3. Debit Litigation Expense for $480,000 and credit Litigation Liability for $480,000.