Animaniacs Company is a manufacturer of toys. During the year, the following situations arose.

1. A safety hazard related to one of its toy products was discovered. It is considered probable that liabilities have been incurred. On the basis of past experience, a reasonable estimate of the amount of loss can be made.

2. One of its small warehouses is located on the bank of a river and could no longer be insured against flood losses. No flood losses have occurred after the date that the insurance became unavailable.

3. This year, Animaniacs began promoting a new toy by including a coupon, redeemable for a movie ticket, in each toy’s carton. The movie ticket, which cost Animaniacs $3, is purchased in advance and then mailed to the customer when the coupon is received by Animaniacs. Animaniacs estimated, based on past experience, that 60% of the coupons would be redeemed. Forty-five percent of the coupons were actually redeemed this year, and the remaining 15% of the coupons are expected to be redeemed next year.

Instructions

(a) How should Animaniacs report the safety hazard? Why?

(b) How should Animaniacs report the noninsurable flood risk? Why?

(c) How should Animaniacs account for the toy promotion campaign in this year?