Sound Audio manufactures and sells audio equipment for automobiles. Engineers notified management in December 2024 of a circuitflaw in an amplifier that poses a potential fire hazard. An intense investigation indicated that a product recall is virtually certain,estimated to cost the company $2 million. The fiscal year ends on December 31.Required:1. Should this loss contingency be accrued, only disclosed, or neither?2. What loss, if any, should Sound Audio report in its 2024 income statement?3. What liability, if any, should Sound Audio report in its 2024 balance sheet?4. Prepare any journal entry needed.Answer is complete but not entirely correct.Complete this question by entering your answers in the tabs below.Req 1 to 3Req 4Prepare any journal entry needed.Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter youranswers in millions (i.e., 10,000,000 should be entered as 10).1NoEvent1General JournalLoss-product recallLiability-product recallDebit2,000,000Credit2,000,000

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Answered: Sound Audio manufactures and sells…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter5: The Income Statement And The Statement Of Cash Flows

Section: Chapter Questions

Problem 4MC

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! Required information [The following information applies to the questions displayed below.] A company designs and sells high-end stereo equipment for auto and home use. Engineers notified management in December Year 1 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 $3.1 million. The fiscal year ends on December 31. 2. What loss, if any, should the company report in its Year 1 income statement? (Enter your answer in dollars, not in millions (i.e. 5.5 should be entered as 5,500,000).) Loss to be reported

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