Concept of accounting recognition

Reference no: EM13133980

Lopez Corporation, a manufacturer of household paints, is preparing annual financial statements at December 31, 2008. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Lopez recall all cans of this paint sold in the last six months. The management of Lopez estimates that this recall would cost $800,000. What accounting recognition, if any, should be accorded this situation?

Choose one answer.

a. No recognition

b. Note disclosure only

c. Operating expense of $800,000 and liability of $800,000

d. Appropriation of retained earnings of $800,000

Reference no: EM13133980

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