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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{.}2$ 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.

Required $2$

Required $3$

Required $4$

What entry, if any, should be recorded? $($If no entry is required for a particular transaction$/$event$,$ select $"$No Journal Entry Required" in the first account field. Enter your answers in dollars, not in millions $($i$.$e$.5\mathrm{.}5$ million should be entered as $5,500,000).)$

Journal entry worksheet

$1$

Record the contingent liability if needed.

Note: Enter debits before credits.

General Journal

Debit

Credit