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Tripez Corporation, a manufacturer of household paints, is preparing annual financial statements at December 31, 2007. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Tripez recall all cans of this paint sold in the last six months. The management of Tripez estimates that this recall would cost $600,000. What accounting recognition, if any, should be accorded this situation? How should it be reported?

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The solution explains the accounting treatment for a product recall.

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Under the conservatism principle we record expenses when probable. In this case there is a ...

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