Part C (Bonus): Many car manufacturers sell extended warranty. For example, Toyota allows car owners to buy extended warranty up to eight years or 125,000 miles. How should we recognize these transactions and how do these transactions affect our warranty liabilities or claim amounts?
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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?Star Wars Computers manufactures and sells pagers and radio paging systems which include a 6-month warranty on product defects. It also sells an extended warranty which provides an additional two years of protection beyond the 6-month warranty. On July 1, 2024, it sold a paging system for $4,500 and an extended warranty for another $1,400. The customer paid for the entire transaction with cash. The journal entry to record this transaction would include:why total stand alone price = estmimated warranty units??? when solving : Orange Inc. offers a discount on an extended warranty on its oPhone when the warranty is purchased at the time the oPhone is purchased. The warranty normally has a price of $132, but Orange offers it for $111 when purchased along with an oPhone. Orange anticipates a 80% chance that a customer will purchase the extended warranty along with the oPhone. Assume Orange sells to 1,000 oPhones with the extended warranty discount offer. What is the total stand-alone selling price that Orange would use for the extended warranty discount option for purposes of allocating revenue among the performance obligations in those 1,000 oPhone contracts? Multiple Choice $111,000 $16,800 $0 $21,000
- 1. On January 1, 2021, ACORN Company offered a three-year warranty from date of sale on any of its products sold after that date. The offer was part of a program to increase sales. Meeting the terms of the warranty was expected to cost 2% of sales. Sales made under warranty in 2021 amounted to ₱9,000,000. One fifth of the units sold in 2021 were returned. These units were repaired or replaced at a cost of ₱32,500. What amount of warranty expense should be shown on ACORN’s 2021 income statement?Kap Co. offers a three year warranty on its products. Kap previously estimated warranty costs to be 2% of sales. Due to a technological advance in production at the beginning of year 3, Kap now believes 1% of sales to be a better estimate of warranty costs. Warranty costs of P800,000 and P960,000 were reported in year 1 and year 2, respectively. Sales for year 3 were P50,000,000. 1. What amount should be presented in Kap's year 3 financial statements as warranty expense?A new PS4 has a purchase price of $700.00. With the extended 2-year warranty, the total cost is $850.00. What percent of the purchase price is the price of the warranty. 12% 19% 82% 21%
- A new Instant Pot has a purchase price of $700.00. With the extended 2-year warranty, the total cost is $850.00. What percent of the purchase price is the price of the warranty? a. 12% b. 19% C.21% d. 82%Orange Inc. offers a discount on an extended warranty on its oPhone when the warranty is purchased at the time the oPhone is purchased. The warranty normally has a price of $132, but Orange offers it for $111 when purchased along with an oPhone. Orange anticipates a 80% chance that a customer will purchase the extended warranty along with the oPhone. Assume Orange sells to 1,000 oPhones with the extended warranty discount offer. What is the total stand-alone selling price that Orange would use for the extended warranty discount option for purposes of allocating revenue among the performance obligations in those 1,000 oPhone contracts? Multiple Choice $111,000 $16,800 $0 $21,000Star Wars Computers manufactures and sells pagers and radio paging systems which include a 6-month warranty on product defects. It also sells an extended warranty which provides an additional two years of protection beyond the 6-month warranty. On July 1, 2024, it sold a paging system for $4,500 and an extended warranty for another $1,400. The customer paid for the entire transaction with cash. Assuming a December 31, 2025, fiscal year-end, the journal entry to record the revenue recognized related to the extended warranty in 2025 would include:
- Consumer Corp. sells dishwashers and washing machines that come with a two-year unlimited warranty on parts and labour for repairs. The warranty is intended to assure customers that the appliances will operate as advertised. The warranty is expected to cost 4% of sales in the first year and 6% of sales in the second year, for a total of 10%. The provision for warranty has a credit balance of $161,000 at the beginning of 20X5. The following events and decisions relate to the warranty: 20X5 Sales revenue of $4,750,000 was generated from products covered by the warranty. Both the sale and the warranty provision must be recorded. 20X5 Warranty work consumed parts inventory with a cost of $8,500, and labour of $35,000. 20X6 Sales revenue from products covered by the warranty were $6,750,000. Both the sale and the warranty provision must be recorded. 20X6 Sales revenue of $6,750,000 was generated from products covered by the warranty. Warranty work…Assume that Ford records a warranty expense for a new F-150 model. The trucks carry a year or mile powertrain warranty. During the first year the average warranty claim is only. Should this information result in a change in the warranty expense assumptions for next year’s model? Explain your answer.Calla Corp. sells equipment that comes with a two-year unlimited warranty on parts and labour for repairs. All sales are cash sales. The warranty is intended to assure customers that the appliances will operate as advertised. The warranty is expected to cost 2% of sales in the first year and 4% of sales in the second year, for a total of 6%. The provision for warranty has a credit balance of $189,000 at the beginning of 20X5. The following events and decisions relate to the warranty: 20X5 Sales revenue of $4,650,000 was generated from products covered by the warranty. Both the sale and the warranty provision must be recorded. 20X5 Warranty work consumed parts inventory with a cost of $8,300, and labour of $33,000. Labour costs were paid in cash. 20X6 Sales revenue from products covered by the warranty were $6,650,000. Both the sale and the warranty provision must be recorded. 20X6 Warranty work…
