WMB is a manufacturer of high-end touring and off-road motorcycles. On November 10, the company was sued by a customer who was injured when the front shock absorber on the WMB 1600 Series motorcycle cracked during use. The company, immediately, conducted a preliminary investigation into the matter during late November and found evidence of a manufacturing defect in the shock absorber. While it is uncertain whether the manufacturing defect is the source of the product failure, the company has voluntarily recalled the front shock absorbers on the 1600 Series motorcycles. The company is uncertain how the lawsuit will be resolved. However, similar lawsuits against other manufacturers have been settled for approximately $2,000,000.

Write a brief memo (note) to the president of WMB, Pat Doe, discussing how the lawsuit might be reported in the financial statements.