Problem:
On Feb 1, 2004, one of the huge warehouses of RME Fireworks Company exploded. Windows in houses and other buildings within a one-mile radius of the explosion were severely damaged, and a number of people were injured. As of feb 15, 2004 (when the Dec 31, 2003, financial statements were completed and sent to the publisher for printing and public distribution), no suits had been filed or claims asserted against the company as a consequence of the explosion. The company fully anticipates that suits will be filed and claims asserted for injuries and damages. Because the casualty was uninsured and the company considered at fault, RME Fireworks will have to cover the damages from its own resources.
Assume you are RME's accounting manager. Recommend the accounting treatment and disclosures that you feel should be made for the casualty and related contingent losses in the financial statements dated Dec 31, 2003.