ABC Company started its business in 2019. It sells an equipment with a 3- year warranty. ABC estimates its warranty costs as a percentage of peso sales. Based on past experience, it is estimated that 4% will be repaired in the first year of warranty, 8% on the second year of warranty and 10% at the last year of warranty period. In 2019, 2020 and 2021, the company was able to sell 10,000 units, 12,000 units and 15,000 units, respectively at a selling price of P 7,500 per unit. The company also incurred actual repair costs of P 500,000, P 1,000,000, and 1,500,000 for years 2019,2020 and 2021, respectively. What amount should ABC Company report as warranty liability as of December 31,2020? A. P 34,800,000 B. P 36,300,000 C. P 58,050,000 D. P 34,300,000
ABC Company started its business in 2019. It sells an equipment with a 3- year warranty. ABC estimates its warranty costs as a percentage of peso sales. Based on past experience, it is estimated that 4% will be repaired in the first year of warranty, 8% on the second year of warranty and 10% at the last year of warranty period. In 2019, 2020 and 2021, the company was able to sell 10,000 units, 12,000 units and 15,000 units, respectively at a selling price of P 7,500 per unit. The company also incurred actual repair costs of P 500,000, P 1,000,000, and 1,500,000 for years 2019,2020 and 2021, respectively. What amount should ABC Company report as warranty liability as of December 31,2020? A. P 34,800,000 B. P 36,300,000 C. P 58,050,000 D. P 34,300,000
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter8: Current And Contingent Liabilities
Section: Chapter Questions
Problem 31CE
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ABC Company started its business in 2019. It sells an equipment with a 3- year warranty. ABC estimates its warranty costs as a percentage of peso sales. Based on past experience, it is estimated that 4% will be repaired in the first year of warranty, 8% on the second year of warranty and 10% at the last year of warranty period. In 2019, 2020 and 2021, the company was able to sell 10,000 units, 12,000 units and 15,000 units, respectively at a selling price of P 7,500 per unit. The company also incurred actual repair costs of P 500,000, P 1,000,000, and 1,500,000 for years 2019,2020 and 2021, respectively.
What amount should ABC Company report as warranty liability as of December 31,2020?
A. P 34,800,000
B. P 36,300,000
C. P 58,050,000
D. P 34,300,000
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