[The following information applies to the questions displayed below.] Top Sound

Question

[The following information applies to the questions displayed below.] 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 $2.6 million. The fiscal year ends on December 31. value Required information 13.12 points Required: 1. Should this contingent liability be reported, disclosed in a note only, or neither? Reported Disclosed in a note only ONeither

Explanation / Answer

1. Reported

The contingent liability is probable and reasonably estimable, so it must be reported.

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