-37. (Adjusting for a claims liability in government-wide financial statements) King City operates a sewage treatment facility and reports its operations in a governmental fund. In the current year, one of the pumps in the plant failed over a holiday weekend. Before plant personnel became aware of the failure, wastewater had already backed up into 10 homes close to the plant. Those homeowners filed claims against the city totaling $1.5 million. City attomeys are negotiating with the homeowners and estimate that it is probable that all claims can be settled for approximately $750,000. However, it expects negotiations to continue for 5 to 6 months after the city's year-end. What, if anything, should be reported in its government-wide activities financial statements at year end as a result of the claim? What, if anything, should the city report in its governmental fund financial statements at year end