In January 2015, a customer filed a lawsuit against Fireen’s Boutique. The customer fell on an icy patch in the store’s parking lot and broke an ankle in December. Fireen’s fiscal year- end is January 31. The company’s attorneys believe that it is reasonably possible that Fireen’s will lose this case, with a 60% probability. The attorneys estimate that the loss will range between $ 400,000 and $ 500,000, which is material to Fireen’s.
Required
a. Explain how the lawsuit should be reported.
b. Prepare any journal entries required.