The oliowing Mormation applies to thequestions displayed beiow Top Saund Interna

Question

The oliowing Mormation applies to thequestions displayed beiow Top Saund International designs and sells high end stero equipment for auto and harre usc. Engincers notficd management in Deccmber 2018 af a circuit flaw in an amplifier that poscs a potential fire hazard. Further investigation indicntes that a product recall is probable, astimated to cot the campany $3.2 millian. The fiscal ycar ands n Decmber 31 value 13.12 points Required information Required: 1. Should this contingent liability be raported, disclosed in a note only, or neither? Reportad Disclosed in a note only Neither

Explanation / Answer

GAAP requires businesses to classify contingent liabilities as either probable, reasonably possible or remote. Only the most probable contingent liability is recognized as a liability on financial statements, whereas reasonably possible contingent liabilities are only mentioned via footnotes within financial reports until their outcome is realized. In the given case, the liability is probable and the amount is determinable, thus it should be reported as liability and a provision is made.

Thus, this contingent liability should be:

   - Reported

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.