1. In November of the current year, an automobile manufacturing company recalled all pickup trucks manufactured during the past two years. A flaw in the battery cable was discovered and the recall provides for replacement of the defective cables. The estimated cost of this recall is $3.7 million. 2. The EPA has notified a company of violations of environmental laws relating to hazardous waste. These actions seek cleanup costs penalties, and damages to property. The company is reasonably certain there will be cost associated with the cleanup, but cannot estimate the amount. The cleanup cost could be as high as $4,170,000 or as little as $670,000 and insurance could reimburse all o part of the cost. There is no way to more accurately estimate the cost to the company at this time. 3. Holland Company does not carry property damage insurance because of the cost. The company has suffered substantial losses each of the past three years. However, it has had no losses for the current year. Management thinks this is too good to be true and is sure there will be significant losses in the coming year. However, the exact amount cannot be determined. Required . What are three categories of contingent liabilities? . For each item in the preceding list, determine the correct accounting treatment. Prepare any required journal entries.

On April 20, 2010, an explosion at BP PLC’s Macondo well in the Gulf of Mexico caused the largest oil spill and one of the worst environmental disasters in U.S. history. Because the incident occurred at the Deepwater Horizon drilling rig, this incident is often referred to as the Deepwater Horizon spill. Approximately 4.9 million barrels of oil were released, threatening the marine environment of the Gulf of Mexico as well as the environment and communities of the Gulf Coast region of the United States. In addition, 11 workers died and 17 were injured in the explosion. While BP bore primary legal responsibility for the spill, Transocean Corporation (the drilling rig operator) and Halliburton Company (the construction contractor) were also held partially responsible. The spill’s financial costs to BP were enormous but also highly uncertain in the years that followed. Initially, the company incurred large costs to respond to the explosion and contain the spill. As time passed, the…

Sound Audio manufactures and sells audio equipment for automobiles. Engineers notified management inDecember 2018 of a circuit flaw 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 onDecember 31.Required:1. Should this loss contingency be accrued, only disclosed, or neither? Explain.2. What loss, if any, should Sound Audio report in its 2018 income statement?3. What liability, if any, should Sound Audio report in its 2018 balance sheet?4. Prepare any journal entry needed.

Sound Audio manufactures and sells audio equipment for automobiles. Engineers notified management in December 2024 of a circuit flaw 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: Should this loss contingency be accrued, only disclosed, or neither? What loss, if any, should Sound Audio report in its 2024 income statement? What liability, if any, should Sound Audio report in its 2024 balance sheet? Prepare any journal entry needed.

in the new building? 40. In January, Prahbu purchased for $90,000 a new machine for use in an existing production line of his manufacturing business. Assume that the machine is a unit of property and is not a material or supply. Prahbu pays $2,500 to install the machine, and after the machine is installed, he pays $1,300 to perform a critical test on the machine to ensure that it will operate in accordance with quality standards. On November 1, the critical test is complete, and Prahbu places the machine in service on the production line. On December 3, Prahbu pays another $3,300 to perform periodic quality control testing after the machine is placed in service. How much will Prahbu be required to capitalize as the cost of the machine? Donn 11 LO 2-1 resear

Walmart is suing Elon Musk’s electric vehicle and clean energy company after Tesla solar panels atop seven of the retailer’s stores allegedly caught fire, according a court filing. The Walmart suit alleges breach of contract, gross negligence and failure to live up to industry standards. Walmart is asking Tesla to remove solar panels from more than 240 Walmart locations where they have been installed, and to pay damages related to all the fires Walmart says that Tesla caused.   The Walmart suit, filed in the state of New York, alleges that: “As of November 2018, no fewer than seven Walmart stores had experienced fires due to Tesla’s solar systems - including the four fires described above and three others that had occurred earlier.” The filing details evacuations, damaged property and inventory. Tesla’s stock dropped more than 1% after hours on the news. Walmart claimed, among myriad complaints, that “Tesla routinely deployed individuals to inspect the solar systems who lacked basic…

Required information [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 $2.7 million. The fiscal year ends on December 31. Required: 1. Should this contingent liability be reported, disclosed in a note only, or neither? Reported Disclosed in a note only Neither

Murphy Mining Company recently purchased a quartz mine that it intends to work for the next 10 years. According to state environmental laws, Murphy must restore the mine site to its original natural prairie state after it ceases mining operations at the site. To properly account for the mine, Murphy must estimate the fair value of this asset retirement obligation. This amount will be recorded as a liability and added to the value of the mine on Murphy’s books. (You will learn more about these asset retirement obligations in Chapters 10 and 13.) There is no active market for retirement obligations such as these, but Murphy has developed the following cash flow estimates based on its prior experience in mining-site restoration. It will take 3 years to restore the mine site when mining operations cease in 10 years. Each estimated cash outflow reflects an annual payment at the end of each year of the 3-year restoration period. Restoration EstimatedCash Outflow    ProbabilityAssessment…

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Calvin Corporation’s office was burglarized. The thieves stole 10 laptop computers andother electronic equipment. The lost assets had an original cost of $35,000 andaccumulated tax depreciation of $19,400. Calvin received an insurance reimbursementof $10,000 related to the theft loss.Required:Determine the amount and character of gain or loss recognized as a result of this theft.Note: Enter a loss with a minus sign.