Swift Corp. prepares its financial statements for its fiscal year ending December 31, year 1. Swift estimates that its product warranty liability is $28,000 at December 31, year 1. On February 12, year 2, before the financial statements were issued, Swift received information about a product defect that will require a recall of all units sold in year 1. It is expected the product recall will cost an additional $40,000 in warranty repairs. 

What should Swift present in its December 31, year 1 financial statements?

 A footnote disclosure listing the estimated amount of $40,000 in warranty repairs and an explanation of the recall.

 An estimated warranty liability of $68,000. 

 A footnote disclosure explaining the product recall. 

 No disclosure is necessary.

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