Exercise $8-13($Algo$)$ Analyze and record a contingent liability $($LO$8-5)$

Top Sound International designs and sells high$-$end stereo equipment for auto and home use. Engineers notified management in

December $2024$ of a circuit flaw in an amplifier that poses a potential fire hazard. Further investigation indicates that a product recall is

probable, estimated to cost the company $$3\mathrm{.}9$ million. The fiscal year ends on December $31.$

Required:

Should this contingent liability be reported, disclosed in a note only, or neither?

What loss, if any, should Top Sound report in its $2024$ income statement?

What liability, if any, should Top Sound report in its $2024$ balance sheet?

What entry, if any, should be recorded?

Complete this question by entering your answers in the tabs below.

Should this contingent liability be reported, disclosed in a note only, or neither?