Question: Compact Electronics is a leading manufacturer of digital camera equipment. Assume the following transactions occur during the year ended December 31, 2012.
Required: Record any amounts as a result of each of these contingencies.
1. Sales were $28 million (all credit) for 2012. Although no customer accounts have been shown to be uncollectible, the company estimates that 2% of credit sales will eventually prove uncollectible.
2. Compact Electronics is the plaintiff in a $4 million lawsuit filed against a supplier. The suit is in final appeal, and attorneys advise it is virtually certain that Compact Electronics will win and be awarded $2.5 million.
3. In November 2012, Compact Electronics became aware of a design flaw in one of its digital camera models. A product recall appears probable and would likely cost the company $500,000.
4. Compact Electronics is the defendant in a patent infringement lawsuit brought by a competitor. It appears reasonably likely Compact Electronics will lose the case, and potential losses are estimated to be in the range of $1.5 to $2.5 million.