Question: Evans & Sons, Inc., received notification from a local attorney that the company was being sued for $ 5 , 0 0 0 , 0

Evans & Sons, Inc., received notification from a local attorney that the company was being sued for $5,000,000 for patent infringement. A review of the situation by the companys CEO led to the conclusion that Evans & Sons had indeed infringed upon the other companys patented product. Nonetheless, the CEO thought the amount of $5,000,000 was excessive and intended to litigate the issue. How should the lawsuit be reported in Evans & Sons annual report?
The lawsuit, if material, should be disclosed as a liability on the balance sheet.
The lawsuit, if material or not, doesn't need to be disclosed in the company's financial statements.
The lawsuit, if material, should be disclosed in the notes to the company's financial statements only.

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