Top Sound International designs and sells high-end stereo equipment for auto and
ID: 2466714 • Letter: T
Question
Top Sound International designs and sells high-end stereo equipment for auto and home use. Engineers notified management in December 2015 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 $2.8 million. The fiscal year ends on December 31.
What liability, if any, should Top Sound report in its 2015 balance sheet? (Enter your answer in dollars, not in millions.)
What entry, if any, should be recorded?
Journal Entry Worksheet
*Record the contingent liability if needed.
What entry, if any, should be recorded?
Journal Entry Worksheet
*Record the contingent liability if needed.
Explanation / Answer
It should report it as contingent liability
Product recall expense (db) $2.8mn
Contingent liability (cR) $2.8mn