Question - Constantine Company is being sued for $4,000,000 for an injury caused to a child as a result of alleged negligence while the child was visiting the Constantine Company plant in March 2010. The suit was filed in July 2010. Constantine's lawyer states that it is probable that Constantine will lose the suit and be found liable for a judgment costing anywhere from $400,000 to $2,000,000. However, the lawyer states that the most probable judgment is $1,000,000.
How should Constantine report the suit in its 2010 financial statements? Discuss the rationale for your answer. Include in your answer disclosures, if any that should be made in Constantine's financial statements or notes.