Chapter 8, Problem 8.7BP

Record contingencies (LO8–5)

Compact Electronics is a leading manufacturer of digital camera equipment. Assume the following transactions occur during the war ended December 31, 2018.

Required:

Record any amounts as a result of each of these contingencies.

  1.    Accounts receivable were $29 million (all credit) at the end of 2018. Although no specific customer accounts haw been shown to be uncollectible, the company estimates that 3% of accounts receivable will eventually prove uncollectible.

  2.    Compact Electronics is the plaintiff in a $5 million lawsuit filed against a supplier. The suit is in final appeal, and attorneys advise it is virtually certain that Compact Electronics will win and be awarded $3.5 million.

  3.    In November 2018, Compact Electronics became aware of a design flaw in one of its digital camera models. A product recall appears probable and would likely cost the company $600,000

  4.    Compact Electronics is the defendant in a patent infringement lawsuit brought by a competitor. It appears reasonably likely Compact Electronics will lose the case, and potential losses are estimated to be in the range of $2.5 to $3.5 million.