Eradicate Now is an extermination company that specializes in pest control. On September 19, 2020, the company was identified as being potentially responsible for causing serious damages to the environment by the Environmental Regulatory Agency. The companys management team met with its lawyers and concluded that it is probable that it will be held responsible for the damages caused. A reasonable estimate of the damages was $2,000,000. Eradicate Now has an insurance policy of $10,000,000 with a deductible clause of $300,000.

Required

a. How should Eradicate Now report this information on its financial statements for the year ended December 31, 2020?