Current Attempt in ProgressHenry's Lawn Equipment sells high-quality lawn mowers and offers a 3-year warranty on all new lawn mowers sold. In 2025, Henrysold $325,500 of new specialty mowers for golf greens for which Henry's service department does not have the equipment to do theservice. Henry has entered into an agreement with Mower Mavens to provide all warranty service on the special mowers sold in 2025.Henry wishes to measure the fair value of the agreement to determine the warranty liability for sales made in 2025. The controller forHenry's Lawn Equipment estimates the following expected warranty cash outflows associated with the mowers sold in 2025.Year202620272028Cash FlowEstimate$2,6004,1204,760$3,0705,0606.200$3,6706,0704030ProbabilityAssessment20%60%20%30%50%20%30%40% 202620272028$2,6004,1204,760$3,0705,0606,200$3,6706,0706,87020%60%20%30%50%20%30%40%30%Click here to view factor tables.Using expected cash flow and present value techniques, determine the value of the warranty liability for the 2025 sales. Use an annualdiscount rate of 4%. Assume all cash flows occur at the end of the year. (Round factor values to 5 decimal places, e.g. 1.25124 and finalanswer to 0 decimal places, e.g. 458,581.)The value of the warranty liability for the 2025 sales $

Warranty liability pertains to the anticipated costs associated with warranties for products and…

Answered: Current Attempt in Progress Henry's…

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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On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at 12,000 per year, which is the normal standalone price that Mopps charges. On December 31, 2020, Mopps and Conklin agree to modify the contract. Mopps reduces the fee for the third year to 10,000, and Conklin agrees to a 4-year extension that will extend services through December 31, 2024, at a price of 15,000 per year. At the time that the contract is modified, Mopps is charging other customers 13,500 for the cleaning and janitorial service. Required: Should Mopps and Conklin treat the modification as a separate contract? If so how should Mopps account for the contract modification on December 31, 2020? Support your opinion by discussing the application to this case of the factors that need to be considered for determining the accounting for contract modifications.
Assurance-Type Warranty Clean-All Inc. sells washing machines with a 3-year assurance-type warranty. In the past, Clean-All has found that in the year after sale, warranty costs have been 3% of sales; in the second year after sale, 5% of sales; and in the third year after sale, 7% of sales. The following data are also available: Required: 1. Prepare the journal entries for the preceding transactions for 20192021. Closing entries are not required. 2. What amount would Clean-All report as a liability on its December 31, 2021, balance sheet, assuming the liability had a balance of 88,200 on December 31, 2018? 3. Next Level How would the failure to recognize a contingent liability affect the financial statements?
On October 1, 2019, Grahams WeedFeed Inc. signs a contract to maintain the grounds for BigData Corp. The contract ends on March 31, 2020, and has a monthly payment of 3,200. The contract does not include any stipulations for additional periods. On June 1, Grahams WeedFeed and BigData sign a new 12-month contract that is retroactive to April 1, 2020. The monthly fee for the new contract is 4,000 per month and is also retroactive to April 1, 2020. During April and May of 2020, while the new contract was being negotiated, Grahams Weed Feed continued to maintain the grounds, and BigData continued to pay 3,200 per month. BigData was satisfied with Grahams WeedFeeds performance, and the only issue during negotiations was the monthly fee. Required: Determine if a valid contract exists between Grahams WeedFeed and BigData during April and May 2020.
Hamlet Corporation purchases computer equipment at a price of 100,000 on January 1, 2019, paying 40,000 down and agreeing to pay the balance in three 20.000 annual instalments beginning December 31, 2019. It is not possible to value either the equipment or the 60,000 note directly; how-ever, Hamlet's incremental borrowing rate is 12%. Required: 1. Prepare a schedule to compute the interest expense and discount amortization on the note. 2. Prepare all the journal entries for Hamlet to record the issuance of the note, each annual interest expense, and the three annual installment payments.
Danny’s Lawn Equipment sells high-quality lawn mowers and offers a 3-year warranty on all new lawn mowers sold. In 2020, Danny sold $300,000 of new specialty mowers for golf greens for which Danny’s service department does not have the equipment to do the service. Danny has entered into an agreement with Mower Mavens to provide all warranty service on the special mowers sold in 2020. Danny wishes to measure the fair value of the agreement to determine the warranty liability for sales made in 2020. The controller for Danny’s Lawn Equipment estimates the following expected warranty cash outflows associated with the mowers sold in 2020. Year Cash FlowEstimate ProbabilityAssessment 2021 $2,500 20% 4,000 60% 5,000 20% 2022 $3,000 30% 5,000 50% 6,000 20% 2023 $4,000 30% 6,000 40% 7,000 30% Instructions Using expected cash flow and present value techniques, determine the value of the warranty liability for the 2020 sales. Use an annual…
Cupola Awning Corporation introduced a new line of commercial awnings in 2024 that carry a two-year warranty against manufacturer’s defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 3% of sales. Sales and actual warranty expenditures for the first year of selling the product were: Sales Actual Warranty Expenditures $ 5,000,000 $ 37,500 Required: Does this situation represent a loss contingency? Prepare journal entries that summarize sales of the awnings (assume all credit sales) and any aspects of the warranty that should be recorded during 2024. What amount should Cupola report as a liability at December 31, 2024?
In 2020, Eastern Appliance Manufacturing introduced a fully automatic washing machine with dryer. The sales price per unit, which comes with warranty, is P40,000. The company offers a three-year warranty against defects and provides service other than the agreed-upon specifications. In addition, the customers are given the option to purchase the warranty separately. If the customer opted not to buy the warranty, the washing machine with dryer is sold for P37,500. The following sales data are compiled for 2020 and 2021. • Washing machine with dryer sold: 2020- 800; 2021- 1,000 • Warranty contracts sold: 2020- 700; 2021- 850 Eastern Appliance Manufacturing estimates that of the total pesos spent for repairs in the warranty contracts, 20% is incurred evenly during the first warranty year, 30% evenly in the second warranty year, and 50% evenly during the third warranty year. Cost of servicing the units during 2020 and 2021 were P100,000 and P510,000, respectively. How much is the unearned…
During 2020, Beautiful Company introduced a fully automatic washing machine with dryer. The sales price per unit that comes with warranty is P40,000. The company offers a three-year warranty against defects and provides service other than the agreed-upon specifications. In addition, the customers are given the option to purchase the warranty separately. If the customer opted not to buy the warranty, the washing machine with dryer is sold for P37,500. The following are the sales data (see image below).Beautiful estimates that of the total pesos spent for repairs in the warranty contracts, 20% is incurred evenly during the first warranty year, 30% evenly in the second warranty year and 50% evenly during the third warranty year. Cost of servicing the units during 2020 and 2021 were P150,000 and P300,000 respectively.How much is the Unearned Revenue from Warranty Contracts at December 31, 2021?
Sanaz Corporation sells computers under a 3-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair labor. During 2020, the corporation sells for cash 700 computers at a unit price of $2,000. On the basis of past experience, the3-year warranty costs are estimated to be $130 for parts and $170 for labor per unit.(For simplicity, assume that all sales occurred on December 31, 2020.) The warranty is not sold separately from the computer. Required a. Record any necessary journal entries in 2020.b. What liability relative to these transactions would appear on the December 31, 2020, balance sheet and how would it be classified?c. In 2021, the actual warranty costs to Sanaz Corporation were $30,500 for parts and $45,100 for labor. Record any necessary journal entries in 2021
In 2019, the Magtag Company sold 16,000 ovens. Magtag estimated that 14% of the machines would require repairs under the two-year assurance-type warranty at an average cost of $60. During 2015, Magtag had an actual outlay of $62,000 for repairs under warranty. Magtag uses the GAAP approach of accruing warranty expense (and the related liability) in the year of the sale. 19. Refer to Exhibit 9-2. What amount should the company report for estimated liability under warranties at the end of20l9?a. $72,400b. $62,000c. $48,000d. $84,000
The Weeknd Co., a machinery dealer, sells a machine for P22,200 under a 1-year warranty contract that requires the company to replace all defective parts and to provide the necessary repair labor at no cost to the customers. With sales being made evenly throughout the year, The Weekend Co. sells for cash 600 machines in 2020 (half of the warranty expense is incurred in 2020, half in 2021). Based on experience, the 1-year warranty costs are estimated to be P510 parts and P660 labor. Assume that in 2020, these warranty costs are incurred exactly as estimated QUESTIONS: What amount of warranty expense would be charged against 2020 revenue? What amount of warranty liability would be appeared on the December 31,2020, statement of financial position?
Carla Corporation sells DVD players. The corporation also offers its customers a 4-year warranty contract. During 2020, Carla sold 20,000 warranty contracts at $132 each. The corporation spent $173,000 servicing warranties during 2020, and it estimates that an additional $865,000 will be spent in the future to service the warranties. Prepare Carla’s journal entry for the sale of contracts. Assume the service costs are inventory costs Prepare Carla’s journal entry for the cost of servicing the warranties. Assume the service costs are inventory costs Prepare Carla’s journal entry for the recognition of warranty revenue. Assume the service costs are inventory costs.

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