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The Heinrich Tire Company recalled a tire in its subcompact line in December 2 0 2 4 . Costs associated with the recall were originally
The Heinrich Tire Company recalled a tire in its subcompact line in December Costs associated with the recall were originally thought to approximate $ million. Now, though, while management feels it is probable the company will incur substantial costs, all discussions indicate that $ million is an excessive amount. Based on prior recalls in the industry, management has provided the following probability distribution for the potential loss:
Note: Use tables, Excel, or a financial calculator. FV of $ PV of $ FVA of $ PVA of $ FVAD of $ and PVAD of $
Loss Amount Probability
$ million
$ million
$ million
An arrangement with a consortium of distributors requires that all recall costs be settled at the end of The riskfree rate of interest is
Required:
& By the traditional approach to measuring loss contingencies, what amount would Heinrich record at the end of for the loss and contingent liability? For the remainder of this problem, apply the expected cash flow approach of SFAC No Estimate Heinrichs liability at the end of the fiscal year.
to Prepare the necessary journal entries. Req and
By the traditional approach to measuring loss contingencies, what amount would Heinrich record at the end of for the
loss and contingent liability? For the remainder of this problem, apply the expected cash flow approach of SFAC No
Estimate Heinrich's liability at the end of the fiscal year.
Note: Enter your answers in whole dollars.
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