In March $2026,$ an explosion occurred at Sheridan Co$.\text{'}$s plant, causing damage to area properties. By May $2026,$ no claims had yet been asserted against Sheridan. However, Sheridan's management and legal counsel concluded that it was reasonably possible that Sheridan would be held responsible for negligence, and that $$5000000$ would be a reasonable estimate of the damages. Sheridan's $$5930000$ comprehensive public liability policy contains a $$503000$ deductible clause. In Sheridan's December $31,2025$ financial statements, for which the auditor's fieldwork was completed in April $2026,$ how should this casualty be reported?

No note disclosure of accrual is required for $2025$ because the event occurred in $2026.$

As an accrued liability of $$503000.$

As a note disclosing a possible liability of $$5000000.$

As a note disclosing a possible liability of $$503000.$