Paul Company Issues a Product Recall Due to an Apparently

question 82

Multiple Choice

Paul Company issues a product recall due to an apparently pre-existing and material defect discovered after the end of its fiscal year. Financial statements have not yet been issued. The action required of Paul Company for this reasonably estimable contingency for the year just ended is:

• A)To disclose it in a footnote.
• B)To accrue a long-term liability.
• C)To accrue the liability and explain it in a footnote.
• D)To do nothing relative to the contingency.

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Definitions:

Materials Quantity Variance

The difference between the actual quantity of materials used in production and the standard quantity expected to be used, multiplied by the standard cost per unit of material.

Labor Efficiency Variance

The difference between the actual hours worked and the standard hours expected, multiplied by the standard labor rate.

June

The sixth month of the year in the Gregorian calendar.

Variable Overhead Efficiency Variance

The difference between the actual variable overheads incurred and the standard variable overheads expected for the actual production, due to efficiency.