Sound Audio manufactures and sells audio equipment for automobiles. Engineers notified management in December2018 of a circuit flaw in an amplifierthat poses a potential fire hazard. An intense investigation indicated that a productrecall is virtually certain, estimated to cost the company 52 million. The fiscal year ends on December 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.
