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Sound Audio manufactures and sells audio equipment for automobiles. Engineers notified management in December 2016...

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Accounting

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Sound Audio manufactures and sells audio equipment for automobiles. Engineers notified management in December 2016 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 $2.5 million. The fiscal year ends on December 31. Required: 1. Should this loss contingency be accrued, only disclosed, or neither? Accrued Disclosed only Neither 2. What loss, if any, should Sound Audio report in its 2016 income statement? (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) 3. What liability, if any, should Sound Audio report in its 2016 balance sheet? (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.51.)

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