During 2020, ABC Company sold appliances that offer product warranties against defects. Based on the entity’s and industry experience, it is estimated that 70% of the products sold have no defects, 20% have minor defects and 10% have major defects. Estimated warranty costs were P 2,000,000 if all products sold have major defects and P 200,000 if all products sold have minor defects. ABC has already incurred P 60,000 of warranty costs relating to appliances sold during 2020. How much liability must be recognize?
During 2020, ABC Company sold appliances that offer product warranties against defects. Based on the entity’s and industry experience, it is estimated that 70% of the products sold have no defects, 20% have minor defects and 10% have major defects. Estimated warranty costs were P 2,000,000 if all products sold have major defects and P 200,000 if all products sold have minor defects. ABC has already incurred P 60,000 of warranty costs relating to appliances sold during 2020. How much liability must be recognize?
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
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During 2020, ABC Company sold appliances that offer product warranties against defects. Based on the entity’s and industry experience, it is estimated that 70% of the products sold have no defects, 20% have minor defects and 10% have major defects. Estimated warranty costs were P 2,000,000 if all products sold have major defects and P 200,000 if all products sold have minor defects. ABC has already incurred P 60,000 of warranty costs relating to appliances sold during 2020.
How much liability must be recognize?
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