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How should this casualty be reported

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Question - In January 2014, an explosion occurred at Kenny Co.'s plant, causing damage to area properties. By March 2014, no claims had yet been asserted against Kenny. However, Kenny's management and legal counsel concluded that it was reasonably possible that Kenny would be held responsible for negligence, and that $2,000,000 would be a reasonable estimate of the damages. Kenny's $4,000,000 comprehensive public liability policy contains a $200,000 deductible clause. In Kenny's December 31, 2013 financial statements, for which the auditor's fieldwork was completed in February 2012, how should this casualty be reported?

a. As a note disclosing a possible liability of $2,000,000.

b. As an accrued liability of $2,000,000.

c. As a note disclosing a possible liability of $200,000.

d. As an accrued liability of $200,000.

Reference no: EM132600396

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