131. Consultants notify management of Generic Drug that a prescription medication poses a potential health risk. Legal counsel indicates that a product recall is probable and is estimated to cost the...

131. Consultants notify management of Generic Drug that a prescription medication poses a potential health risk. Legal counsel indicates that a product recall is probable and is estimated to cost the company between $5 and $8 million. How will this affect the company’s income statement and balance sheet this period?

132. Decorative Concrete produces a concrete overlay for residential and commercial concrete flooring. Customers have complained that one of the products results in excessive cracking. The likelihood the company will incur a loss on this product is probable and the amount of the loss is estimated to be somewhere between $1.5 and $3 million.

1. Should this contingent liability be reported, disclosed in a note only, or both? Explain.

2. What loss, if any, should Decorative Concrete report in its income statement?

3. What liability, if any, should Decorative Concrete report in its balance sheet?

4. What entry, if any, should be recorded?