In February 2019, an Explosion Occurred at a Dinkol Company

question 21

Multiple Choice

In February 2019, an explosion occurred at a Dinkol Company plant, causing damage to area properties. By April 15, 2019, no claims had yet been asserted against Dinkol. However, Dinkol's management and legal counsel have concluded that it is possible but not probable that Dinkol might be held responsible for negligence. Furthermore, they have determined that a reasonable estimate for damages might be as much as $7,000,000. Dinkol's comprehensive public liability policy contains a $800,000 deductible clause. For Dinkol's December 31, 2018 financial statements, for which the auditor's fieldwork was completed in April 2019, how should this possible casualty loss be reported, if at all?

• A) as an accrued liability of $800,000
• B) as a note disclosing a contingent loss of $800,000
• C) as a note disclosing a contingent loss of $7,000,000
• D) No disclosure or accrual is required.

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Definitions:

Appropriate Arbitration

A fair and neutral method for resolving disputes through an independent third party, often employed when both sides agree to abide by the decision made.

Win/Win Strategy

A cooperative negotiation or conflict resolution approach where all parties seek solutions that address the interests of everyone involved, aiming for mutual benefit.

Common Interests

Shared passions, activities, or concerns among people, which often serve as a basis for social connections or friendships.

Voluntary Arbitration

A process where disputing parties agree to submit their conflict to a neutral third party for resolution, without resorting to litigation.