Chato Company sells electrical goods covered by a one-year warranty for any defects. Of the sales of P70,000,000 for the year, the entity estimates that 3% will have major defect, 5% will have minor defect and 92% will have no defect. The cost of repairs would be P5,000,000 if all the products sold had major defect andP3,000,000 if all had minor defect. What amount should be recognized as a warranty provision? * a. 8,000,000 b. 5,600,000 c. 300,000 d. 190,000

Chato Company sells electrical goods covered by a one-year warranty for any defects. Of the sales of P70,000,000 for the year, the entity estimates that 3% will have major defect, 5% will have minor defect and 92% will have no defect. The cost of repairs would be P5,000,000 if all the products sold had major defect andP3,000,000 if all had minor defect. What amount should be recognized as a warranty provision? * a. 8,000,000 b. 5,600,000 c. 300,000 d. 190,000

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

Chapter9: Current Liabilities And Contingent Obligations

Section: Chapter Questions

Problem 10RE

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Chato Company sells electrical goods covered by a one-year warranty for any defects. Of the sales of P70,000,000 for the year, the entity estimates that 3% will have major defect, 5% will have minor defect and 92% will have no defect. The cost of repairs would be P5,000,000 if all the products sold had major defect andP3,000,000 if all had minor defect. What amount should be recognized as a warranty provision? a. 8,000,000 b. 5,600,000 c. 300,000 d. 190,000
Chato Company sells electrical goods covered by a one – year warranty for any defects. Of the salesof P70,000,000 for the year, the entity estimated that 3% will have major defects, 5% will have aminor defect and 92% will have no defect. The cost of repairs would be P5,000,000 if all theproducts sold had major defect and P3,000,000 if all had minor defect.What amount should be recognized as a warranty provision?
In 20X1, Stevens Corp. began a new product line of wearable technology that carries a 24-month warranty against manufacturer defects. Based on industry experience, Stevens expects warranty costs to be an amount equal to approximately 9% of total sales dollars. During 20X1, new sales of this technology totaled $3,000,000. The costs incurred to satisfy warranty claims in 20X1 was $90,000. Required: Answer the following two questions. Question #1: What should Stevens report as the "Warranty Expense" balance on its 20X1 income statement?Answer: Question #2: What should Stevens report as the "Warranty Liability" balance on its balance sheet at 12/31/X1?Answer
Amazing Company provides a warranty with all its products it sells. It estimates that it will sell 1,200,000 units of its product for the year ended December 31, 2021, and that its total revenue for the product will be P100,000,000. It also estimates that 60% of the product will have no defects, 30% will have major defects, and 10% will have minor defects. The cost of a minor defect is estimated to be P5 for each product sold, and the cost for a major defect cost is P15. The company also estimates that the minimum amount of warranty expense will be P2,500,000 and the maximum will be P12,000,000.How much is the Provision for Warranty to be reported at December 31, 2021?
ABC Inc. provided warranty for all products sold during 2021. The entity sold200,000 units during the current year. It is estimated that 75% of the products will haveno defects. 15% of the products sold will have a minor defect and 10% of the productswill have a major defect. The cost of a minor defect is P100 per unit while the cost ofmajor defect is P300. The entity is also involved in a tax dispute with BIR in 2021. Basedon legal advice, there is a 40% chance that the entity will lose the case and the entityhave to pay P 500,000.What total amount of provisions should be recorded on December 31, 2021?
4. A business sells 5,000 appliances at P8,000 each, which carry a one-year repair warranty. If minor repairs were to be required to appliances sold in 2022, the repair cost would be P600 each. If major repairs were needed on all goods sold, the cost would be P1,500 each. It is estimated that 40% of goods sold in 2022 will have no defects, 45% will have minor defects, and 15% will have major defects. What amount of provision on product warranty should the company recognize for 2022?
During 2021, JJJ Co. 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 2% of sales in the year of sale, 3% in the year after sale, and 4% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows:Sales / Actual Warranty / Expenditures2021 / 600,000 / 9,0002022 / 1,500,000 / 65,0002023 / 2,100,000 / 135,000What amount should JJJ report as a liability at December 31, 2023?
11. ABC Company sells televisions at an average price of P15,000 and also offers a separate 2-year warranty contract for P2,000 that requires the entity to perform periodic services and replace defective parts. In 2022, ABC sold 550 television sets and 400 extended warranty contracts for cash. The entity estimates the two-year warranty costs as P1,200 for parts and P600 for labor and accounts for warranties separately. The sale occurred on December 31, 2022. The entity recognizes income from the warranties based on the actual warranty availed by the customers within the warranty period. Expired warranties are closed to income from warranties. In 2023, 30% of sold warranties were availed by customers, and in the year 2024, only 80% of the remaining warranty contracts were availed. For the year 2024, how much is ABCs net profit from warranty contracts?
18. ABC Company sells televisions at an average price of P15,000 and also offers a separate 2-year warranty contract for P2,000 that requires the entity to perform periodic services and replace defective parts. In 2022, ABC sold 550 television sets and 400 extended warranty contracts for cash. The entity estimates the two-year warranty costs as P1,200 for parts and P600 for labor and accounts for warranties separately. The sale occurred on December 31, 2022. The entity recognizes income from the warranties based on the actual warranty availed by the customers within the warranty period. Expired warranties are closed to income from warranties. In 2023, 30% of sold warranties were availed by customers. How much is the unearned revenue from warranty contracts to be presented in the statement of financial position as of the year ended 2023?
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On January 1, 2023, Sunland Ltd. sold on account 1,400 units of its product for a total price of $537,000 with a warranty guarant that the products were free of any defects. The products have a one-year assurance-type warranty and Sunland estimates that th cost will be $25,800. The cost of the units is $447,000. In addition, the company sold extended warranties related to 400 units for one-year period beyond the one-year assurance period at a cost of $15,200. By the company's year-end, December 31, 2023, no warranty costs were incurred. By the company's year-end, December 31, 2024, $9,545 of warranty costs were incurred and paid cash. Prepare the appropriate journal entries for 2023 and 2024.
Matrix Company sold 5,000 computers on September 1, 2024, at a total price of $5,000,000, with a warranty guarantee that the product was free of defects. The cost of the computers is $3,550,000. The term of this assurance warranty is 2 years, which Matrix estimates will cost $77,000. In addition, Matrix sold extended warranties related to 2,000 computers for 3 years beyond the 2-year period for $180 per computer. On November 22, 2024, Matrix incurred labor costs of $3,000 and part costs of $25,000 related to the assurance warranties. Matrix prepares financial statements on December 31, 2024. It estimates that its future assurance warranty costs will total $50,000 at December 31, 2024. A) Prepare the journal entries to record this transaction on September 1, 2024. B) Prepare the journal entry on November 22, 2024. C) Prepare the journal entry on December 31, 2024 (assuming financial statements are prepared on December 31).