Textbook Problem

Various Contingency Issues

At December 31, 2019, Niki Company reviewed the following situations to consider their impact on its 2019 financial statements:

1. 1. In December 2019, Niki became aware of a safety hazard related to one of its products and announced a product recall. Estimates of the probable costs resulting from the hazard include highest, most likely, and lowest amounts.
2. 2. During 2019, Niki received a note for goods sold to a customer. The note was sold, with recourse, to a bank. The customer filed for bankruptcy in December 2019, before the note’s 2020 due date.
3. 3. In 2015, Niki moved and assigned the remaining 10 years of its old lease to Pro Company, an unrelated third party. Pro agreed to make all payments due on the assigned lease, but Niki has prime responsibility for the lease to the lessor. At December 31, 2019, it is reasonably possible that Pro will be unable to make all payments due on the assigned lease.

Required:

For each of the preceding situations, state how Niki should report the impact, if any, on its 2019 financial statements, and explain why the reporting is appropriate.