Question

Overton Corporation, a manufacturer of household paints, is preparing annual financial statements at December 31, 2019. Because of a recently proven health hazard in one of its paints, the government has ordered Overton to recall all cans of this paint sold in the last six months. The management of Overton believes it is probable it would lose if it contested the recall and estimates that this recall would cost $800,000. What accounting recognition, if any, should be accorded this situation, assuming the amount would be considered material to Overton of the company had to make the recall

Answer 1

Answer:

The answer is "Operating expense of $800,000 and liability of $800,000".

Explanation:

It's obvious from its government that the company must recall any paint cans which have proved health hazardous. Its organization must remember its $800,000 in canned cans. The cost of recall would also be referred to as administration fees since these costs aren't linked to its production of the paints. All operations of the company were performed. It must be held responsible for the calculation of the recalling costs.