Decorative Concrete produces a concrete overlay for residential and commercial c

Question

Decorative Concrete produces a concrete overlay for residential and commercial concrete flooring. Customers have complained that one of the products results in excessive cracking. The likelihood the company will incur a loss on this product is probable and the amount of the loss is estimated to be somewhere between $2.0 and $5 million.

1. Should this contingent liability be reported, disclosed in a note only, or both?

2. What loss, if any, should Decorative Concrete report in its income statement? (Enter your answer in millions rounded to 2 decimal places.)

3. What liability, if any, should Decorative Concrete report in its balance sheet? (Enter your answer in millions rounded to 2 decimal places.)

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.)

Explanation / Answer

Ans 1 To be reported As the contingent liability is probable and is also reasonably estimated hence it should be reported. ans 2 As there is range of $2 and 5 million hence the minimum loss should be reported which is $2 million ans 3 As $2 million is reported on income statement the same should be reported on Balance Sheet $2 million ans 4 Dr Cr Loss $2 million Contingent Liablity $2 million

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