Magic Capes Company designs and sells capes. A customer has sued this company claiming the product is defective because it doesn't actually allow the wearer to fly. Your attorney has advised you that the chance of the customer winning the lawsuit is remote. If the customer wins the lawsuit, at most, he'll receive $2,000. How should Magic Capes Company report the lawsuit in its financial statement?

a. It should report the lawsuit as a contingent liability on the balance sheet.

b. It should include a footnote about the lawsuit in the financial statements.

c. Lawsuits are only reported if and when the lawsuit is lost

d. No disclosure is required.