In February 2017,an Explosion Occurred at a Dinkol Company Plant,causing

question 32

Multiple Choice

In February 2017,an explosion occurred at a Dinkol Company plant,causing damage to area properties.By April 15,2017,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 $4,000,000.Dinkol's comprehensive public liability policy contains a $400,000 deductible clause.For Dinkol's December 31,2016 financial statements,for which the auditor's fieldwork was completed in April 2015,how should this possible casualty loss be reported,if at all?

• A)as an accrued liability of $400,000
• B)as a note disclosing a contingent loss of $400,000
• C)as a note disclosing a contingent loss of $4,000,000
• D)No disclosure or accrual is required.

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