In March 2008, an explosion occurred at Howe Co.'s plant, causing damage to area properties. By May 2008, no claims had yet been asserted against Howe. However, Howe's management and legal counsel concluded that it was reasonably possible that Howe would be held responsible for negligence, and that $4,000,000 would be a reasonable estimate of the damages. Howe's $5,000,000 comprehensive public liability policy contains a $400,000 deductible clause. In Howe's December 31, 2007 financial statements, for which the auditor's fieldwork was completed in April 2008, how should this casualty be reported?
A) As a note disclosing a possible liability of $4,000,000.
B) As an accrued liability of $400,000.
C) As a note disclosing a possible liability of $400,000.
D) No note disclosure of accrual is required for 2007 because the event occurred in 2008.

Question

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The Answer of In March 2008, an explosion occurred at Howe Co.'s plant, causing damage to area properties. By May 2008, no claims had yet been asserted against Howe. However, Howe's management and legal counsel concluded that it was reasonably possible that Howe would be held responsible for negligence, and that $4,000,000 would be a reasonable estimate of the damages. Howe's $5,000,000 comprehensive public liability policy contains a $400,000 deductible clause. In Howe's December 31, 2007 financial statements, for which the auditor's fieldwork was completed in April 2008, how should this casualty be reported?
A) As a note disclosing a possible liability of $4,000,000.
B) As an accrued liability of $400,000.
C) As a note disclosing a possible liability of $400,000.
D) No note disclosure of accrual is required for 2007 because the event occurred in 2008.

In March 2008, an Explosion Occurred at Howe Co