Sound audio manufactures and sells audio equipment for automobiles. Engineers notified Management in December 2016 a b circuit for in an amplifier that poses a potential fire hazard. and intends investigation indicated that a product recall is virtually certain, estimated to cost the company $2000000. the fiscal year ends on December 31st.

1. should this loss contingency be accrued, only disclosed, or neither? Explain. 2. what loss, if any, should Sound audio report in its 2016 income statement? 3. what liability, if any, should Sound audio report in its 2016 balance sheet? 4. prepare any journal entry needed.