Case 11-6 Contingencies Angela Company is a manufacturer of toys. During the year, the following situations arose:

A safety hazard related to one of its toy products was discovered. It is considered probable that liabilities have been incurred. Based on past experience, a reasonable estimate of the amount of loss can be made. One of the firms small warehouses is located on the bank of a river and can no longer be insured against flood losses. No flood losses occurred after the date the insurance became unavailable. This year, Angela began promoting a new toy by including a coupon, redeemable for a movie ticket, in each toys carton. The movie ticket, which cost Angela $2, is purchased in advance and then mailed to the customer when Angela receives the coupon. Based on past experience, Angela estimated that 60% of the coupons would be redeemed. Forty percent of the coupons would be actually redeemed this year, and the remaining 20% of the coupons were expected to be redeemed next year. Required:

A.How should Angela report the safety hazard? Why? Do not discuss deferred tax implications.

B.How should Angela report the uninsured flood risk? Why?

C.How should Angela account for the toy-promotion campaign in this year?