Top Sound International designs and sells high-end stereo equipment for auto and home use. Engineers notified management in December 2012 of a circuit flaw in an amplifier that poses a potential fire hazard. Further investigation indicates that a product recall is probable, estimated to cost the company $6.5 million. The fiscal year ends on December 31.

What liability, if any, should Top Sound report in its 2012 balance sheet?

What entry, if any, should be recorded?