CA13-6 (Warranties and Loss Contingencies) The following independent situations involve loss contingencies.

Part 2: Constantine Company is being sued for $4,000,000 for an injury caused to child as a result of alleged negligence while the child was visiting Constantine Company plant in March 2014. The suit was filed in July 2014. Constantines lawyer states that it is probable that Constantine will lose the suit and be found liable for a judgement costing anywhere from $400,000 to $2,000,000. However, the lawyer states that the most probable judgement is $1,000,000.

Instructions:

How should Constantine report the suit in its 2014 financial statements? Discuss the rationale for your answer. Include in your answer disclosures, if any, that should be made in Constantines financial statements or notes.