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Problem 13-8 Expected cash flow approach; product recall (L013-6] The Heinrich Tire Company recalled a tire in its subcompact line in December 2018. Costs associated
Problem 13-8 Expected cash flow approach; product recall (L013-6] The Heinrich Tire Company recalled a tire in its subcompact line in December 2018. Costs associated with the recall were originally thought to approximate $58 million. Now, though while management feels it is probable the company will incur substantial costs a discussions indicate that $58 million is an excessive amount Based on prior recalls in the industry management has provided the following probability distribution for the potential loss (EV of $1. PV of $1. EVA of $1. PVA of St EVAD S1 and PVAD of 5) (Use appropriate factor(s) from the tables provided.) Probability Los Amount 48 million 38 million 28 million An arrangement with a consortium of distributors requires that all recall costs be settled at the end of 2019. The risk-free rate of interest is 5%. Required: 1. & 2. By the traditional approach to measuring loss contingencies, what amount would Heinrich record at the end of 2018 for the loss and contingent liability for the remainder of this problem, apply the expected cash flow approach of SFAC No 7 Estimate Heinrich's liability at the end of the 2018 fiscal year 3. to 5. Prepare the necessary journal entries. Complete this question by entering your answers in the tabs below. Reg 1 and 2 Reg 3 to 5 By the traditional approach to measuring loss contingencies, what amount would Helmich record at the end of 2018 for the loss and contingent liability? For the remainder of this problem, apply the expected cash flow approach of SKAC.NO7. Estimate Heinrich's liability at the end of the 2018 fiscal year. (Enter your answers in whole dollars. Traditional SSFAC NO. Reg 3 to 5 >
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