Mingle,Inc.,a manufacturer of cleaning products,is preparing annual financial statements at December 31,2016.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 $880,000.What accounting recognition,if any,should be accorded this situation?

Question

Quizplus · Accepted Answer

The estimated cost of the recall represents a liability that should be recognized in the financial statements in accordance with the matching principle of accounting. The liability should be recognized at the amount of the estimated cost to be incurred and disclosed in the notes to the financial statements. Therefore, the correct accounting recognition is expense and liability of $880,000.