Required information Exercise 8-12A Analyze and record a contingent liability (L08-5) [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 2021 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 $3.9 million. The fiscal year ends on December 31. Exercise 8-12A Part 1 Required: 1. Should this contingent liability be reported, disclosed in a note only, or neither? This contingent liability should be

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Contingent Liabilities and Provisions

A contingent liability can be defined as a liability the occurrence of which is dependent upon the happening of an uncertain future event. It is generally recorded in the books only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly.