How would Yeti account for the contingent liability arising from a recall of its soft coolers and gear cases?

Yeti is recalling nearly two million soft coolers and gear cases, including the Hopper M30 Soft Cooler 1.0 and 2.0, Hopper M20 Soft Backpack Cooler, and SideKick Dry Gear Case, due to a magnet ingestion hazard. The products, sold between March 2018 and January 2023, feature large internal pockets with powerful magnet closures that can fail and potentially be swallowed, leading to serious health risks. No injuries have been reported, but Yeti is offering a full refund and a $25 gift card for the affected items. Customers should stop using the recalled products and visit Yeti’s website for instructions on returns and replacements.

View a quick tutorial video about contingent liabilities at this link and then answer the following questions.

Questions

1. What is a contingent liability?
2. What are the three potential accounting treatments for a contingent liability?
3. In your opinion, how do you think Yeti will treat this contingent liability?

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