Top Sound International designs and sells high-end stereo equipment for auto and
ID: 2504904 • Letter: T
Question
Top Sound International designs and sells high-end stereo equipment for auto and home use. Engineers notified management in December 2012 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 $6.5 million. The fiscal year ends on December 31.
What liability, if any, should Top Sound report in its 2012 balance sheet?
What entry, if any, should be recorded?
Top Sound International designs and sells high-end stereo equipment for auto and home use. Engineers notified management in December 2012 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 $6.5 million. The fiscal year ends on December 31.
What liability, if any, should Top Sound report in its 2012 balance sheet?
What entry, if any, should be recorded?
Explanation / Answer
6500000
contingent liability