In March 2018, an explosion occurred at Kirk Co.\'s plant, causing damage to are

Question

In March 2018, an explosion occurred at Kirk Co.'s plant, causing damage to area properties. By May 2018, no claims had yet been asserted against Kirk. However, Kirk's management and legal counsel concluded that it was reasonably possible that Kirk would be held responsible for negligence, and that $5,000,000 would be a reasonable estimate of the damages. Kirk's $6,000,000 comprehensive public liability policy contains a $500,000 deductible clause. In Kirk's December 31, 2017 financial statements, for which the auditor's fieldwork was completed in April 2018, how should this casualty be reported?

A) As a note disclosing a possible liability of $5,000,000.

B) As an accrued liability of $500,000.

C) As a note disclosing a possible liability of $500,000.

D) No note disclosure of accrual is required for 2017 because the event occurred in 2018.

Must show work!

Explanation / Answer

Events occurred after balance sheet date but before aplssent of board of directors are given if there is a event occurred which have a material effects shall be disclosed to the users of financial statements.

As the audit work is also completed in April and the event occurred in March

It shall be disclosed as a not disclosing a possible liability of 5,00,000

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