Stony Electronics, an electronics manufacturer, includes battery packs with its laptop computers that it sells. After a year of sales of the product, management learns that the battery packs have the potential to overheat, which may lead to burns or fire hazards. As a result of this issue, management has determined the likelihood of recalling the battery. packs are highly probable. The estimated cost of the recall (publishing the notice and replacing the batteries with other safer options) is $350,000. How should this potential product recall be treated in the Stony Electronics financial statements? 

Choose the most appropriate accounting treatment from the following options: 

Select one: 

a. Accrue potential loss in the income statement. 

b. Disclose potential loss in the notes accompanying the financial statements. 

c. Do not accrue or disclose the potential loss in the financial statements. 

d. Either a or b. 

e. Either b or c.

Answer rating: 100% (QA)

a Accrue potential loss in the income statement Accrued income is income that a company will recogni... View the full answer