Problem # 10

A)Total Control Co. issues a product recall due to a significant defect discovered after the end of its fiscal year. Financial statements have not yet been issued. The loss from the recall is estimated at $50 million.

What action is required by Total Control Co. regarding the contingency from the recall? Explain.

B) Wind Co suffered a significant flood after the date of reporting their balance sheet at the end of year 3, but prior to the date of an auditor's report. The flood had a significant direct effect on Wind Co's inventory, and thus their financial statements' inventory section.

How should Wind Co handle this flood event? Explain.

C) On March 21, Year 2, Quick company with a calendar year-end issued its Year 1 financial statements. On February 28, Year 2, Quick's only manufacturing plant was severely damaged by a storm and had to be shut down. Total property losses were $10 million and determined to be material. The amount of business disruption losses is unknown.

How should the impact of the storm be reflected in the company's Year 1 financial statements.Explain.