9. Current Liabilities
Contingent Liabilities
Multiple Choice
Multiple ChoiceSumsang designs and sells smartphones for personal and commercial use. During the current year, the product engineers notified management of a flaw in the design that could cause the latest model to spontaneously combust. After a further investigation, it was noted that a product recall was probable, with an estimated cost to the company of $2,500,000. What influence might this information have on the current year financial statements?
A
The company should accrue a liability for the entire $2,500,000
B
The company should accrue a liability for an amount less than $2,500,000
C
The company should disclose information about this contingency in the notes to the financial statement
D
The company does not need to accrue a liability or disclose in the footnotes until the actual payments occur
E
Both (a) and (c)
F
Both (b) an (c)
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