Purpose journal entry

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Reference no: EM132618

Question:

Sound Audio manufactures and sells audio equipment for automobiles. Engineers notified management in December 2013 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, disclosed only, or neither? Describe.

2. What loss, if any, could Sound Audio report in its 2013 income statement?

3. What liability, if any, should Sound Audio report in its 2013 balance sheet?

4. Purpose any journal entry needed.

Reference no: EM132618

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