Short answers, pulled from the story.
The USS Panay incident was a Japanese bombing attack on the U.S. Navy gunboat Panay and three Standard Oil Company tankers on the Yangtze River near Nanjing on the 12th of December 1937. Japan and the United States were not at war at the time.
The USS Panay incident happened on the 12th of December 1937, during the Battle of Nanjing. The Panay was sunk that afternoon after being hit by bombs and gunfire from Japanese aircraft.
Lieutenant Arthur Anders gave the order to abandon ship at 2 pm on the 12th of December 1937, after the Panay suffered damage beyond repair and heavy casualties among the crew.
Japan's government took full responsibility for the sinking, sent Vice Admiral Rokuzo Sugiyama to deliver a formal apology that reached Washington, D.C. on Christmas Eve, and paid an indemnity of $2,214,007.36 on the 22nd of April 1938.
Modern historians believe the attack may have been intentional. Newsreel footage showed Japanese pilots flying close enough to the Panay for their faces to be visible, and historian John Prados found decrypted Navy intercepts indicating the planes were acting under orders.
The USS Panay was attacked while anchored on the Yangtze River, roughly 28 miles upstream from Nanjing, after evacuating the last American citizens from the city on the 11th of December 1937.