Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. 7 the heinrich tire company recalled a tire in

7 The Heinrich Tire Company recalled a tire in its subcompact line...

80.2K

Verified Solution

Question

Accounting

7 image
The Heinrich Tire Company recalled a tire in its subcompact line in December 2018. Costs associated with the recall were originally thought to approximate $54 million. Now, though, while management feels it is probable the company will incur substantial costs, all discussions indicate that $54 million is an excessive amount. Based on prior recalls in the industry, management has provided the following probability distribution for the potential loss: (FV of $1, PV of $1, FVA of $1. PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Loss Amount $ 44 million $ 34 million $ 24 million Probability 20% 50% 30% An arrangement with a consortium of distributors requires that all recall costs be settled at the end of 2019. The risk- free rate of interest is 5%. Required: 1. & 2. By the traditional approach to measuring loss contingencies, what amount would Heinrich record at the end of 2018 for the loss and contingent liability? For the remainder of this problem, apply the expected cash flow approach of SFAC No. 7 Estimate Heinrich's liability at the end of the 2018 fiscal year. 3. to 5. Prepare the necessary journal entries

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students