In January 2022, 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 yearend 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.