Bizarre 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 P10,000,000 were made evenly throughout 2011. The expenditures for warranty repairs and replacements for the products sold in 2011 are expected to be made 50% in 2011 and 50% in 2012. The 2012 outflows of economic benefits related to the warranty will take place on June 30, 2012. Experience indicates that 95% of products sold require no warranty repairs, 3% of products sold require minor repairs costing 10% of the sale price, and 2% of products sold require major repairs or replacement costing 90% of sale price. The appropriate discount factor for cash flows expected to occur on June 30, 2012 is 0.95. 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. What is the warranty provision on December 31, 2011? a. 210,000 b. 222,600 c. 111,300 d. 105,735
Bizarre 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 P10,000,000 were made evenly throughout 2011. The expenditures for warranty repairs and replacements for the products sold in 2011 are expected to be made 50% in 2011 and 50% in 2012. The 2012 outflows of economic benefits related to the warranty will take place on June 30, 2012. Experience indicates that 95% of products sold require no warranty repairs, 3% of products sold require minor repairs costing 10% of the sale price, and 2% of products sold require major repairs or replacement costing 90% of sale price. The appropriate discount factor for cash flows expected to occur on June 30, 2012 is 0.95. 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. What is the warranty provision on December 31, 2011? a. 210,000 b. 222,600 c. 111,300 d. 105,735
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
Related questions
Question
Bizarre 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 P10,000,000 were made evenly throughout 2011. The expenditures for warranty repairs and replacements for the products sold in 2011 are expected to be made 50% in 2011 and 50% in 2012. The 2012 outflows of economic benefits related to the warranty will take place on June 30, 2012. Experience indicates that 95% of products sold require no warranty repairs, 3% of products sold require minor repairs costing 10% of the sale price, and 2% of products sold require major repairs or replacement costing 90% of sale price. The appropriate discount factor for cash flows expected to occur on June 30, 2012 is 0.95. 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. What is the warranty provision on December 31, 2011?
a. 210,000
b. 222,600
c. 111,300
d. 105,735
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning