Motorola is a world leader in the development of cellular phone technology. During the year, the company becomes aware of potential costs due to (1) a product defect that is reasonably possible and is reasonably estimable, (2) a safety hazard that is probable and cannot be reasonably estimated, and (3) a new product warranty that is probable and can be reasonably estimated. Which of these potential costs, if any, should Motorola record?
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Motorola is a world leader in the development of cellular phone technology. During the year, the company becomes aware of potential costs due to (1) a product defect that is reasonably possible and is reasonably estimable, (2) a safety hazard that is probable and cannot be reasonably estimated, and (3) a new product warranty that is probable and can be reasonably estimated. Which of these potential costs, if any, should Motorola record?
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- Quandary Corporation has a major customer who is alleging a significant product defect. Quandary engineers and attorneys have analyzed the claim and have concluded that there is a 51% chance that the customer would be successful in court and that a successful claim would result in a range of damages from $10 million to $20 million, with each part of the range equally likely to occur. The damages would need to be paid soon enough that timevalue- of-money considerations are not material. Would a liability be accrued under U.S. GAAP? Under IFRS? If a liability were accrued, what amount would be accrued under U.S. GAAP? Under IFRS?Quandary Corporation has a major customer who is alleging a significant product defect. Quandary engineers and attorneys have analyzed the claim and have concluded that there is a 51% chance that the customer would be successful in court and that a successful claim would result in a range of damages from $10 million to $20 million, with each part of the range equally likely to occur. The damages would need to be paid soon enough that time-value-of-money considerations are not material. Would a liability be accrued under U.S. GAAP? Under IFRS? If a liability were accrued, what amount would be accrued under U.S. GAAP? Under IFRS?A Company is seeking financial advice as to whether to replace its old equipment. Some of its printing machines have reached the end of their useful working life and they are considering whether to replace them with the latest computer-based equipment. Such equipment will be costly, but the firm expects to be able to reduce its staffing levels to compensate. There are two options currently under review. Under the first option, the firm will purchase a standard piece of equipment at a cost of £10,000 payable now. Over the next five years, however, the firm expects to be able to reduce its staffing costs by £3,500 per year, in the first three years, and then by £3,000 in year 4 and £2,500 in year 5. At the end of the five years, the equipment would have reached the end of its life and would need replacing. Under the second option, the firm would purchase a slightly more sophisticated piece of equipment for an initial cost of £12,000. In the first two years, staff cost savings is…
- A Company is seeking financial advice as to whether to replace its old equipment. Some of its printing machines have reached the end of their useful working life and they are considering whether to replace them with the latest computer-based equipment. Such equipment will be costly, but the firm expects to be able to reduce its staffing levels to compensate. There are two options currently under review. Under the first option, the firm will purchase a standard piece of equipment at a cost of £10,000 payable now. Over the next five years, however, the firm expects to be able to reduce its staffing costs by £3,500 per year, in the first three years, and then by £3,000 in year 4 and £2,500 in year 5. At the end of the five years, the equipment would have reached the end of its life and would need replacing. Under the second option, the firm would purchase a slightly more sophisticated piece of equipment for an initial cost of £12,000. In the first two years, staff cost savings is…A large brokerage company is assessing the introduction of a new computer system to improve routing and execution of customer orders. The managing director wants to install a new Smart Routing system, whereas another director prefers the Direct Routing system. Each machine provides the same order-execution ability and can satisfy the broker’s obligation to give investors the best possible order execution. The initial cost of each system is $170,000, but because of differing software, maintenance, and processing requirements, estimates of the after-tax costs of operation differ. These are as follows: Period Smart Routing Direct Routing 1 39,000 56,000 2 48,000 61,000 3 48,000 61,000 4…Abby Inc. is an established computer software company. In 2009, the firm incurred the following costs in the process of designing, developing and producing a new software program using a certain technology to access the Internet: Designing and planning P1,800,000 Code development 2,700,000 Testing 900,000 Production of product master 4,500,000 In 2010, Abby incurred P1,800,000 in costs to produce the software program for sale in 2010. The costs of designing and planning, code development and testing were all incurred before the technological feasibility of the product was established. Abby began marketing the software program in 2010 and earned revenues of P4,320,000 in 2010. Abby estimates that the total revenues over the 4-year life of the product will be P21,600,000. At the end of 2010, Abby was offered…
- Abby Inc. is an established computer software company. In 2009, the firm incurred the following costs in the process of designing, developing and producing a new software program using a certain technology to access the Internet: Designing and planning P1,800,000 Code development 2,700,000 Testing 900,000 Production of product master 4,500,000 In 2010, Abby incurred P1,800,000 in costs to produce the software program for sale in 2010. The costs of designing and planning, code development and testing were all incurred before the technological feasibility of the product was established. Abby began marketing the software program in 2010 and earned revenues of P4,320,000 in 2010. Abby estimates that the total revenues over the 4-year life of the product will be P21,600,000. At the end of 2010, Abby was offered…Jireh Limited also manufactures prefab components for the housing industry. They have just been offered a new four year contract to supply a component, subject to them meeting certain quality requirements set by GREDA Ghana. The production manager is concerned that the current machine, which has been fully depreciated, will not be able to meet the stringent quality controls that will be required because the technology is obsolete, and the machine is unreliable. The company currently spends £50,000 per year to maintain and operate this machine which has no secondhand market value. On the basis of the production managerʼs recommendation, management has decided to replace the current machine. It is estimated that the replacement machine will cost £1 million with a four-year useful life. The companyʼs depreciation policy is to use a 20% reducing balance method over the life of the asset. As part of the purchase agreement for the new machine, the suppliers are offering a special maintenance…A noted accountant once remarked that the optimal number of faulty TV sets for the XYZ Electric Co. Ltd. to sell is "not zero," even if XYZ promises to repair all faulty XYZ sets that break down, for whatever reason, within two years of purchase. The optimal number would be "not zero" because None of the other alternatives are correct The repair costs are tax deductible It is cheaper (and, therefore more profitable) to repair a few sets than to have such stringent quality control that no defects result All the three statements about faulty TV sets are correct Zero defects could not be accounted for and hence the accounting system could not capture the information to better plan future production
- The auditor worked for this client for years. But before accepting or continuing with the client, What are the reasons the auditor or audit firm should or should not retain this existing client this time around using the information below about the client? What risks could the client, its business, and its environment pose to the auditor or audit firm? The client: Although client cash flows have been stable, the disruption caused by the 2020 global pandemic made it difficult for retail lessors to pay their rent on time. Due to the company's tenant-friendly approach, retail clients were allowed to renegotiate their lease and temporarily pause rent payments between June 2020 and July 2021, shifting those payments to the last 12 months. Most of these leases will expire in the next two years, including all retail companies unable to pay their rent. However, they estimate that they will receive all the lost cash flow from these tenants within a couple of years. Currently, the company is a…Fittipaldi Company recently purchased a patent for a radar detection device for $8 million. This radar detection device has been proven to detect three times better than any existing radar detector on the market. Fittipaldi expects four years to pass before any competitor can devise a technology to beat its device.a. Why does the $8 million represent an asset? Should the fixed asset department be responsible for its accounting?b. Where would the source documents come from?c. What happens if a competitor comes out with a new model in two years rather than four?d. How does the auditor verify the numbers that the fixed asset department calculated at the end of the period? Is it the auditor’s responsibility to be aware of external regulatory conditions that might affect the value of the patent? For example, what if seven more states prohibit the use of radar detectors?Kolenda Technology Group has a contract to build a network for a customer for a total sales price of $10 million. Th is network will take an estimated three years to build, but considerable uncertainty surrounds total building costs because new technologies are involved. In other words, the outcome cannot be reliably measured, but it is probable that the costs up to the agreed upon price will be recovered. Assuming the following expenditures, how much revenue, expense (cost of construction), and income would the company recognize each year under IFRS and using the completed contract method under US GAAP? Th e amounts periodically billed to the customer and received from the customer are not necessarily equivalent to the amount of revenue being recognized in the period. For simplicity, assume Kolenda pays cash for all expenditures. 1 . At the end of Year 1, Kolenda has spent $3 million. 2 . At the end of Year 2, Kolenda has spent a total of $5.4 million. 3 . At the end of Year 3, the…