Top Sound International designs and sells high-end stereo equipment for auto and home use. Engineers notified management in December 2018 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 $3.2 million. The fiscal year ends on December 31. Required:
1. Should this contingent liability be reported, disclosed in a note only, or neither?
a. Reported
b. Disclosed in a note only
c. Neither
2. What loss, if any, should Top Sound report in its 2018 income statement? Enter your answer in dollars, not in millions.
Loss to be reported:
3. What liability, if any, should Top Sound report in its 2018 balance sheet? Enter your answer in dollars, not in millions.
Liability to be reported:
4. What entry, if any, should be recorded? If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars, not in millions.