On January 17, 2011, an Explosion Occurred at an Orioles

question 31

Multiple Choice

On January 17, 2011, an explosion occurred at an Orioles Fireworks plant causing extensive property damage to area buildings. Although no claims had yet been asserted against Orioles by March 10, 2011, Orioles' management and counsel concluded that it is reasonably possible Orioles will be responsible for damages and that $2,500,000 would be a reasonable estimate of its liability. Orioles' $10,000,000 comprehensive public liability policy has a $500,000 deductible clause. In Orioles' December 31, 2011, financial statements, which were issued on March 25, 2012, how should this item be reported?

• A) As a footnote disclosure indicating the possible loss of $500,000
• B) As an accrued liability of $500,000
• C) As a footnote disclosure indicating the possible loss of $2,500,000
• D) As an accrued liability of $2,500,000

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Definitions:

Industrial Regulation

This term pertains to government rules and laws aimed at supervising and controlling industry practices to ensure fair competition, quality standards, and consumer protection.

Production Process

The method or series of actions taken to manufacture goods or provide services, involving various stages of production from raw materials to finished products.

Consumer Product Safety Commission

A U.S. government agency responsible for protecting the public from unreasonable risks of injury or death associated with consumer products.

Social Regulation

Regulations aimed at improving societal welfare by dictating how businesses can operate, focusing on issues like health, safety, and the environment.