Mingle, Inc., a manufacturer of cleaning products, is preparing annual financial statements at December 31, 2018. Because of a recently proven health hazard in one of its cleaning products, the U.S. government has clearly indicated its intention of having Mingle recall all bottles of that product sold in the last six months. The management of Mingle estimates that this recall would cost $800,000. What accounting recognition, if any, should be accorded this situation?

Question

Quizplus · Accepted Answer

The situation requires recognition of an expense and a contingent liability because the recall is probable and the cost can be reasonably estimated.