Ogden Motors, Incorporated is involved in a lawsuit. It is reasonably possible that the jury will find in favor of the plaintiff and Ogden will owe ten million dollars. What is the appropriate reporting of this lawsuit and what is the effect in the balance sheet?

Multiple Choice

Report as a contingent liability; decrease stockholders' equity and increase liabilities

Report as a contingent liability; increase stockholders' equity and decrease liabilities

Disclose; no effect in the balance sheet

Disclose; decrease stockholders' equity and decrease liabilities