Dynamo Corporation manufactures toasters. Each toaster comes with a 5-year assurance-type warranty. The toasters sell for S50 each. During Year 1, Dynamo sells 500 toasters, for cash. Past experience shows that the average warranty costs are $5 each or $2,500 for these toasters. In Year 1, Dynamo pays $600 cash for warranty costs on the toasters sold that year

Dynamo Corporation manufactures toasters. Each toaster comes with a 5-year assurance-type warranty. The toasters sell for S50 each. During Year 1, Dynamo sells 500 toasters, for cash. Past experience shows that the average warranty costs are $5 each or $2,500 for these toasters. In Year 1, Dynamo pays $600 cash for warranty costs on the toasters sold that year

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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Blake Department Store sells television sets with one-year warranties that cover repair and replacement of television parts. In the month of June, Blake sells forty television sets with a per unit cost of $500. If Blake estimates warranty fulfillment at 10% of sales, what would be the warranty liability reported in June? A. $1,000 B. $2,000 C. $500 D. $20,000
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Pesto Company started its business in selling printers with three-year warranty. It estimates its warranty cost as a percentage of peso sales. Based on past experience, it is estimated that 3% will be repaired during the first year of warranty, 5% will be repaired during the second year of warranty and 7% will be repaired in the third year. The product warranty provides service other than agreed upon specification. In 2021 and 2022, the company was able to sell 10,000 units and 12,500 units, respectively at a total price of P7,000 per unit. The company also incurred actual repair costs of P3,500,000 and P9,500,000 in 2021 and 2022, respectively. The selling price of the warranty is P2,000 per unit. The printer is selling at P5,000 if without the warranty. Pesto Company should report unearned warranty income at the end of December 31, 2022 of? Group of answer choices P29,333,333 P21,666,667 P16,000,000 P10,625,000
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Munster sells a product with a four-year warranty. Warranty costs are estimated as a percentage of sales as follows: Year of sale 1% Year after sale 1% Two years after sale 1% Three years after sale 4% Additional data: Year Warranty Sales Expenditures 2019 $50,000 $600 2020 60,000 800 2021 40,000 900 2022 70,000 2,500 If this is an assurance-type warranty and the company uses the modified cash method, what would be warranty expense for 2021? If this is an assurance-type warranty and and the company uses the GAAP approach of accruing warranty expense (and the related liability) in the year of the sale, what would be warranty expense for 2021? If the company considers that 7% of the selling price of the product represents payment for an implied service-type warranty, what amount of unearned warranty revenue would be disclosed on the balance sheet on December 31, 2022?