!Required information[The following information applies to the questions displayed below.]A company designs and sells high-end stereo equipment for auto and home use. Engineers notified management inDecember Year 1 of a circuit flaw in an amplifier that poses a potential fire hazard. Further investigation indicates that aproduct recall is probable, estimated to cost the company $3.1 million. The fiscal year ends on December 31.2. What loss, if any, should the company report in its Year 1 income statement? (Enter your answer in dollars, not in millions (i.e. 5.5should be entered as 5,500,000).)Loss to be reported

When any product cost is more than the sales price will be known as the loss and this will be…

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Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter5: The Income Statement And The Statement Of Cash Flows

Section: Chapter Questions

Problem 4MC

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Sound Audio manufactures and sells audio equipment for automobiles. Engineers notified management in December 2024 of a circuit flaw in an amplifier that poses a potential fire hazard. An intense investigation indicated that a product recall is virtually certain, estimated to cost the company $2 million. The fiscal year ends on December 31. Required: Should this loss contingency be accrued, only disclosed, or neither? What loss, if any, should Sound Audio report in its 2024 income statement? What liability, if any, should Sound Audio report in its 2024 balance sheet? Prepare any journal entry needed.
Sound Audio manufactures and sells audio equipment for automobiles. Engineers notified management in December 2021 of a circuit flaw in an amplifier that poses a potential fire hazard. An intense investigation indicated that a product recall is virtually certain, estimated to cost the company $10.5 million. The fiscal year ends on December 31.Required:1. Should this loss contingency be accrued, only disclosed, or neither?2. What loss, if any, should Sound Audio report in its 2021 income statement?3. What liability, if any, should Sound Audio report in its 2021 balance sheet?4. Prepare any journal entry needed.
Sound Audio manufactures and sells audio equipment for automobiles. Engineers notified management in December 2021 of a circuit flaw in an amplifier that poses a potential fire hazard. An intense investigation indicated that a product recall is virtually certain, estimated to cost the company $8.0 million. The fiscal year ends on December 31. Required: Should this loss contingency be accrued, only disclosed, or neither? What loss, if any, should Sound Audio report in its 2021 income statement? What liability, if any, should Sound Audio report in its 2021 balance sheet? 1 Loss contingency _______________________ 2 Loss _________ million 3 Liability _________ million Prepare any journal entry needed. Journal entry worksheet Record the liability on product recall. Transaction General Journal Debit Credit 1…
Top Sound International designs and sells high-end stereo equipment for auto and home use. Engineers notified management in December 2021 of a circuit flaw in an amplifier that poses a potential fire hazard. Further investigation indicates that a product recall is probable estimated to cost the company $4 million. The fiscal year ends on December 31.Required:1. Should this contingent liability be reported, disclosed in a note only, or neither? Explain.2. What loss, if any, should Top Sound report in its 2021 income statement?3. What liability, if any, should Top Sound report in its 2021 balance sheet?4. What entry, if any, should be recorded?
Sound Audio manufactures and sells audio equipment for automobiles. Engineers notified management in December 2021 of a circuit flaw in an amplifier that poses a potential fire hazard. An intense investigation indicated that a product recall is virtually certain, estimated to cost the company $2 million. The fiscal year ends on December 31.Required:1. Should this loss contingency be accrued, only disclosed, or neither? Explain.2. What loss, if any, should Sound Audio report in its 2021 income statement?3. What liability, if any, should Sound Audio report in its 2021 balance sheet?4. Prepare any journal entry needed.
Conrad Playground Supply underwent a restructuring in 2021. The company conducted a thorough internal audit, during which the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries are prepared. Additional computers were acquired at the beginning of 2019 and added to the company’s office network. The $50,000 cost of the computers was inadvertently recorded as maintenance expense. Computers have five-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method. Two weeks prior to the audit, the company paid $22,000 for assembly tools and recorded the expenditure as office supplies. The error was discovered a week later. On December 31, 2020, merchandise inventory was understated by $88,000 due to a mistake in the physical inventory count. The company uses the periodic inventory system. Two years earlier, the company recorded a 3% stock dividend (3,000 common shares, $1 par)…
Conrad Playground Supply underwent a restructuring in 2021. The company conducted a thorough internal audit, during which the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries are prepared. Additional computers were acquired at the beginning of 2019 and added to the company’s office network. The $42,000 cost of the computers was inadvertently recorded as maintenance expense. Computers have five-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method. Two weeks prior to the audit, the company paid $14,000 for assembly tools and recorded the expenditure as office supplies. The error was discovered a week later. On December 31, 2020, merchandise inventory was understated by $72,000 due to a mistake in the physical inventory count. The company uses the periodic inventory system. Two years earlier, the company recorded a 3% stock dividend (1,400 common shares, $1 par)…
Conrad Playground Supply underwent a restructuring in 2021. The company conducted a thorough internal audit, during which the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries are prepared. Additional computers were acquired at the beginning of 2019 and added to the company’s office network. The $48,500 cost of the computers was inadvertently recorded as maintenance expense. Computers have five-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method. Two weeks prior to the audit, the company paid $20,500 for assembly tools and recorded the expenditure as office supplies. The error was discovered a week later. On December 31, 2020, merchandise inventory was understated by $85,000 due to a mistake in the physical inventory count. The company uses the periodic inventory system. Two years earlier, the company recorded a 3% stock dividend (2,700 common shares, $1 par)…
Mama Mo Na Tita Ko Corporation, a manufacturer of cleaning products, is preparing annual financial statements at December 31, 2022. Because of a recently proven health hazard in one of its cleaning products, the government has clearly indicated its intention of having the company recall all cans of this paint sold in the last three months. The management estimates that this recall would cost P800,000. What accounting recognition, if any, should be accorded this situation? Statement 1: Recognize expense of P800,000 and liability of P5,800,000. Statement 2: Disclosed P800,000 as contingent liability in the notes to financial statement. Both statements are correct Both statements are incorrect Only statement 2 is correct Only statement 1 is correct
The following items pertain to possible provisions: A company self-insures for floods. That is, it pays no insurance but is liable to replace assets lost through flood damage. No losses have been incurred this year, but there have been $195,000 of losses in most other years, and the company is concerned that there might well be $485,000 of losses next year, evening out the pattern. A company offers a three-year guarantee over parts and labour for products sold to ensure that parts work as expected. There were no payments this year, and only 5% of products sold this year are expected to need repairs in the next year. The cost of this work would be in the range of $125,000. A company has been sued by a customer for $1,130,000. The customer slipped on ice coming out of the store and claims the store did not put salt down or clear the stairs properly. The company’s lawyer has indicated that there is a 10% chance that the company will lose the lawsuit based on past history. The company,…
6 Mama Mo Na Tita Ko Corporation, a manufacturer of cleaning products, is preparing annual financial statements at December 31, 2022. Because of a recently proven health hazard in one of its cleaning products, the government has clearly indicated its intention of having the company recall all cans of this paint sold in the last three months. The management estimates that this recall would cost P800,000. What accounting recognition, if any, should be accorded this situation? Statement 1: Recognize expense of P800,000 and liability of P5,800,000. Statement 2: Disclosed P800,000 as contingent liability in the notes to financial statement. Group of answer choices Only statement 2 is correct Only statement 1 is correct Both statements are correct Both statements are incorrect
3) The client purchased raw material that was received just before year-end. The purchase was recorded based on its estimated value. The invoice was not received until February 5, 2021, and the cost was substantially different than was estimated4) On February 15, 2021, the civil court decided that Client Company must pay compensation loss due to defect product sold to their customer. lawsuits started in court since June 20205) On February 20, 2021, a major of client customer which has large amount of outstanding A/R suddenly fill for bankruptcy6) On April 1, 2021 fire rage accident destroy client warehouse and the loss were materialQuestions:a. Indicate type 1 subsequent event, type 2 subsequent event, or not subsequent event. What kinds of action, client need to do? Adjust, disclose, or no need to do adjust/disclose for every point form 1) to 6). Provide the reason why it should be adjusted or disclose or neither. (30%)b. What effect on auditors’ independent report if client refused…

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