Question - In November 2016, Classical became aware of a design flaw in an industrial saw that poses a potential electrical hazard. A product recall appears unavoidable. Such an action would likely cost the company $500,000.
Classical offered $25 cash rebates on a new model of jigsaw. Customers must mail in a proof-of-purchase seal from the package plus the cash register receipt to receive the rebate. Experience suggests that 60% of the rebates will be claimed. Ten thousand of the jigsaws were sold in 2016. Total rebates to customers in 2016 were $105,000 and were recorded as promotional expense when paid.
Prepare the year-end entries for any amounts that should be recorded as a result of each of the above contingencies?