Coronado Industries, a manufacturer of household paints, is preparing annual financial statements at December 31, 2020. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Coronado recall all cans of this paint sold in the last six months. The management of Coronado estimates that this recall would cost $ 810000. What accounting recognition, if any, should be accorded this situation?   Appropriation of retained earnings of $ 810000 Operating expense of $ 810000 and liability of $ 810000 No recognition Note disclosure only

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A:

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A:

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Contingent Liabilities and Provisions

A contingent liability can be defined as a liability the occurrence of which is dependent upon the happening of an uncertain future event. It is generally recorded in the books only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly.