Electro Company gives warranties at the time of sale to purchasers of its product. The entity undertakes to make good, by repair or replacement, manufacturing defects that become apparent within one year from the date of sale. Sales of P5,000,000 were made evenly throughout 2021. The expenditures for warranty repairs and replacements for the products sold in 2021 are expected to be made 50% in 2021 and 50% in 2022. The 2022 outflows of economic benefits related to the warranty will take place on December 31, 2022. The entity estimated that 75% of products sold require no warranty repairs, 15% of products sold require minor repairs costing P100,000 and 10% of products sold require major repairs costing P400,000. An appropriate risk adjustment factor to reflect the uncertainties in the cash flow estimates is an increment of 6% to the probability weighted expected cash flows. The appropriate discount factor for cash flows expected to occur on December 31, 2022 is 0.94. 1. What amount should be reported as warranty expense for 2021? a. 500,000 b. 498,200 c. 514,100 d. 530,000 2. What amount should be reported as warranty liability on December 31, 2021? a. 265,000 b. 249,100 c. 250,000 d. 235,000 105

Electro Company gives warranties at the time of sale to purchasers of its product. The entity undertakes to make good, by repair or replacement, manufacturing defects that become apparent within one year from the date of sale. Sales of P5,000,000 were made evenly throughout 2021. The expenditures for warranty repairs and replacements for the products sold in 2021 are expected to be made 50% in 2021 and 50% in 2022. The 2022 outflows of economic benefits related to the warranty will take place on December 31, 2022. The entity estimated that 75% of products sold require no warranty repairs, 15% of products sold require minor repairs costing P100,000 and 10% of products sold require major repairs costing P400,000. An appropriate risk adjustment factor to reflect the uncertainties in the cash flow estimates is an increment of 6% to the probability weighted expected cash flows. The appropriate discount factor for cash flows expected to occur on December 31, 2022 is 0.94. 1. What amount should be reported as warranty expense for 2021? a. 500,000 b. 498,200 c. 514,100 d. 530,000 2. What amount should be reported as warranty liability on December 31, 2021? a. 265,000 b. 249,100 c. 250,000 d. 235,000 105

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 10E

See similar textbooks

Similar questions

On July 1, 2019, Aldrich Company purchased as an available-for-sale security 200,000 face value, 9% U.S. Treasury notes for 194,000. The notes mature July 1, 2020, and pay interest semiannually on January 1 and July 1. The notes were sold on December 1, 2019, for 199,000. Aldrich normally uses straight-line amortization on all of its notes. In its income statement for the year ended December 31, 2019, what amount should Aldrich report as a gain on the sale of the available-for-sale security? a. 2,500 b. 3,500 c. 5,000 d. 6,000
Company gives warranties at the time of sale to purchasers of its product. The entity undertakes to make good, by repair or replacement, manufacturing defects that become apparent within one year from the date of sale. Sales of P5,000,000 were made evenly throughout 2019. The expenditures for warranty repairs and replacements for the product sold in 2019 are expected to be made 50% in 2019 and 50% in 2020. The 2020 outflows of economic benefits related to the warranty will take place on December 31, 2020. The entity estimated that 75% of products sold require no warranty repairs, 15% of products sold require minor repairs costing P100,000 and 10% of products sold require major repairs costing P400,000. An appropriate risk adjustment factor to reflect the uncertainties in the cash flow estimates is an increment of 6% to the probability weighted expected cash flows. The appropriate discount factor for cash flows expected to occur on December 31, 2020 is 0.94. What amount should be…
Headland Company must make computations and adjusting entries for the following independent situations at December 31, 2026. 1. Its line of amplifiers carries a 3-year warranty against defects. On the basis of past experience, the estimated warranty costs related to dollar sales are first year after sale-2% of sales revenue; second year after sale-3% of sales revenue; and third year after sale-5% of sales revenue. Sales and actual warranty expenditures for the first 3 years of business were: 2024 2025 2026 Sales Revenue $ 839,200 1,098,000 1,268,000 Warranty Expenditures $ 6,680 16,630 68,030 Compute the amount that Headland should report as a liability in its December 31, 2026, balance sheet. Assume that all sales are made evenly throughout each year with warranty expenses also evenly spaced relative to the rates above. Liability that should be reported on December 31, 2026 $ 2. With some of its products, Headland includes coupons that are redeemable in merchandise. The coupons have…
Swifty Company must make computations and adjusting entries for the following independent situations at December 31, 2026. 1. Its line of amplifiers carries a 3-year warranty against defects. On the basis of past experience, the estimated warranty costs related to dollar sales are first year after sale-2% of sales revenue; second year after sale-3% of sales revenue; and third year after sale-5% of sales revenue. Sales and actual warranty expenditures for the first 3 years of business were: Sales Revenue 2024 $764,500 2025 1,177,800 2026 1,155,500 Warranty Expenditures $6,330 16,190 64,340 Compute the amount that Swifty should report as a liability in its December 31, 2026, balance sheet. Assume that all sales are made evenly throughout each year with warranty expenses also evenly spaced relative to the rates above. Liability that should be reported on December 31, 2026 $ 2. With some of its products, Swifty includes coupons that are redeemable in merchandise. The coupons have no…
In 2020, Pluto Company started selling new computer that carried a 2-year warranty against defects. Based on the manufacturer's recommendations, the entity estimated warranty cost as a percentage of sales.First year of warranty - 3%Second year of warranty - 9% 2020 2021 Sales 5,000,000 7,000,000 Actual warranty repairs 100,000 250,000 Prepare the necessary journal entries to record this transaction, using the expense as incurred approach, for the years 2020 and 2021.
On January 2, 2025, Ivanhoe Company sells production equipment to Kingbird Inc. for $48,000. Ivanhoe includes a 2-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on January 2, 2025. During 2025, Ivanhoe incurs costs related to warranties of $910. At December 31, 2025, Ivanhoe estimates that $660 of warranty costs will be incurred in the second year of the warranty. (a) Show Transcribed Text Prepare the journal entry to record this transaction on January 2, 2025, and on December 31, 2025 (assuming financial statements are prepared on December 31, 2025). (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter O for the amounts. List all debit entries before credit entries. Record journal entries in the order presented in the problem.) Show Transcribed Text (b) Date Account Titles and Explanation Show…
The following selected transactions relate to contingencies of Classical Tool Makers, Inc., which began operations in July 2021. Classical's fiscal year ends on December 31. Financial statements are issued in April 2022 1. Classical's products carry a one-year warranty against manufacturer's defects. Based on previous experience, warranty costs are expected to approximate 5% of sales. Sales were $2.1 million (all credit) for 2021. Actual warranty expenditures were $40,100 and were recorded as warranty expense when Incurred. 2. Although no customer accounts have been shown to be uncollectible, Classical estimates that 2% of credit sales will eventually prove uncollectible. 3. in December 2021, the state of Tennessee filed sult against Classical, seeking penalties for violations of clean air laws. On January 23, 2022, Classical reached a settlement with state authorities to pay $1.6 million in penalties. 4. Classical is the plaintiff in a $4.1 milion lawsuit filled against a suppiler.…
1. On January 1, 2019, EROS Company introduced a new line of products that carries a 3-year warranty against factory defects. The product warranties provide assurance that the new line of products will function as intended based on agreed-upon specifications. Estimated warranty costs related to peso sales are as follows: 2% of sales in the year of the sale, 4% of sales in the year after-sale, and 6% of sales in the second year after sale. Sales and warranty expenditures for the period 2019 to 2021 were as follows: Sales Actual warranty expenditures 2019 P 5,000,000 P 100,000 2020 7,500,00 150,000 2021 10,000,000 200,000 The company's reporting period is a calendar year. How much is the warranty expense for the year 2020? 2. If Chimmy Co. issued a 3-year non-interest bearing note in exchange for an equipment for P 1,000,000, which of the…
The following transaction relate to Tool Company’s contingencies. The financial statements are dated December 31, 2023 and were issued on March 31, 2024. a. Tool’s products carry one –year warranty against manufacturer defects. Based on past experience, warranty costs are expected to be 4% of sales. Sales for 2023 were P2,000,000 and actual warranty cost incurred was P30,000. b. In December 2023, an NGO filed suit against Tool seeking penalties for violation of clean air laws. Tool’s counsel advised that is probable that the entity will lose the case and that the amount of penalty is P2,000,000. Appropriately, the entity recorded the liability. On January 15, 2024, Tools reached a settlement to pay P1,500,000 in penalty. c. Tools is the plaintiff in a P4,000,000 suit filed against a supplier. The attorney advised that it is probable that the entity will win the case and that the award is P2,500,000. On March 15, 2024, the court ruled in favor of Tools and received P2,000,000.…
During 2019, Bonita Industries introduced a new line of machines that carry a three-year warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated at 1% of sales in the year of sale, 2% in the year after sale, and 3% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: Sales Actual Warranty Expenditures 2019 $ 1394000 $ 24000 2020 997000 38000 2021 1394000 90000 $ 3785000 $ 152000 What amount should Bonita report as a liability at December 31, 2021? $ 35820 $0 $ 75100 $ 13940
On November 30, 2021, the entity lent P45,000, receiving a promissory note to be collected after three months, together with the 20% interest. How much is the total liability related to this transaction at the end of 2021? Your answer
Indonesia Company had P2,000,000 note payable due on June 30, 2021. Under the existing loan facility on December 31, 2020, the entity had the discretion to refinance the note payable for at least 15 months after the end of the reporting period. On December 31, 2020, what amount of the note payable should be reported as non-current liability?