Sound Audio manufactures and sells audio equipment for automobiles. Engineers notified management in December 2016 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 2016 income statement? 3. What liability, if any, should Sound Audio report in its 2016 balance sheet? 4. Prepare any journal entry needed.
Sound Audio manufactures and sells audio equipment for automobiles. Engineers notified management in December 2016 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 2016 income statement? 3. What liability, if any, should Sound Audio report in its 2016 balance sheet? 4. Prepare any journal entry needed.
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 2016 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 2016 income statement? 3. What liability, if any, should Sound Audio report in its 2016 balance sheet? 4. Prepare any
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