For the past 3 months, Kenton Inc. has been negotiating a labor contract with potentially significant wage increases. Before completing the year-end financial statements on November, 30. Kenton determined that the contract was likely to be signed in the near future. Kenton has estimated that the effect of the new contract will cost the company either $100,000, $200,000, or $300,000. Also Kenton believes that each estimate has an equal chance of occurring and that the likelihood of the new contract being retroactive to the fiscal year ended November 30 is probable. According to GAAP regarding contingencies, Kenton should
a. Do nothing because no loss will occur if the contract is never signed.
b. Disclose each loss contingency amount in the notes to the November 30 financial statements.
c. Accrue $100,000 u the income statement, and disclose the nature of the contingency and the additional loss exposure.
d. Follow conservatism and accrue $300,000 in the income statement, and disclose the nature of the contingency.