When auditing product warranty liabilities, when should the warranty cost be recognized? Question 1 options: At the time the warranty work is performed At the time of purchase Evenly, annually over the life of the product In the last year of the product's life
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When auditing product warranty liabilities, when should the warranty cost be recognized?
Question 1 options:
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At the time the warranty work is performed
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At the time of purchase
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Evenly, annually over the life of the product
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In the last year of the product's life
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- Warranty expenditures arise when a business sells items and then calculates the number of units and the cost per unit for possible repairs and replacements throughout the warranty term.True \sFalseWhen an entity has a continuing policy of guaranteeing new products against defects for three years, the liability arising from the warranty A. Should be reported as part current and part noncurrentB. Should be reported as noncurrentC. Should be reported as current.D. Need not be disclosed.1. On January 1, 2019, EROS Company introduced a new line of products that carries a 3-year warranty against factory defects. The product warranties provide assurance that the new line of products will function as intended based on agreed-upon specifications. Estimated warranty costs related to peso sales are as follows: 2% of sales in the year of the sale, 4% of sales in the year after-sale, and 6% of sales in the second year after sale. Sales and warranty expenditures for the period 2019 to 2021 were as follows: Sales Actual warranty expenditures 2019 P 5,000,000 P 100,000 2020 7,500,00 150,000 2021 10,000,000 200,000 The company's reporting period is a calendar year. How much is the warranty expense for the year 2020? 2. If Chimmy Co. issued a 3-year non-interest bearing note in exchange for an equipment for P 1,000,000, which of the…
- 1. On January 1,2019, QWERTY Company introduced a new line of product that carries a 3 year warranty against factory defects. The product warranties provide assurance that the new line of product will function as intended based on agreed-upon specifications. Estimated warranty costs related to peso sales are as follows: 2% of sales in the year of sale, 4% of sales in the year after sale, and 6% of sales in the second year after sale. Sales and warranty expenditures for the period 2019 to 2021 were as follows: Sales Actual warranty expenditures 2019 P 5,000,000 P 100,000 2020 7,500,00 150,000 2021 10,000,000 200,000 The company's reporting period is a calendar year. How much is the warranty liability as of December 31,2021? 2. If Chimmy Co. issued a 3-year non-interest bearing note in exchange of an equipment for P 1,000,000, which of the…a) A manufacturer gives warranties at the time of sale to purchasers of its product. Under the terms of the contract for sale, the manufacturer undertakes to make good by repair or replacement, manufacturing defects that become apparent within three years from the date of sale. On past experience, it is probable that there will be some claims under the warranties. Past experience suggests that 75% of the goods sold will have no defects, 20% will have minor defects and 5% will have major defects. If minor defects were detected in all products sold, the cost of repairs would be $1,000,000; if major defects were detected in all products sold, the cost would be $4,000,000. Requirements: 1. Do you think a provision should be recognized? Explain your decision 2. If a provision should be recognized, prepare the necessary journal entry to record the liability. (b) During the year ended 30 June 2014, Parent company guarantees borrowings of Subsidiary company which amounts to $1,000,000. At…(a) A manufacturer gives warranties at the time of sale to purchasers of its product. Under the terms of the contract for sale, the manufacturer undertakes to make good by repair or replacement, manufacturing defects that become apparent within three years from the date of sale. On past experience, it is probable that there will be some claims under the warranties. Past experience suggests that 75% of the goods sold will have no defects, 20% will have minor defects and 5% will have major defects. If minor defects were detected in all products sold, the cost of repairs would be $1,000,000; if major defects were detected in all products sold, the cost would be $4,000,000. Requirements: Do you think a provision should be recognized? Explain your decision
- (a) A manufacturer gives warranties at the time of sale to purchasers of its product. Under the terms of the contract for sale, the manufacturer undertakes to make good by repair or replacement, manufacturing defects that become apparent within three years from the date of sale. On past experience, it is probable that there will be some claims under the warranties. Past experience suggests that 75% of the goods sold will have no defects, 20% will have minor defects and 5% will have major defects. If minor defects were detected in all products sold, the cost of repairs would be $1,000,000; if major defects were detected in all products sold, the cost would be $4,000,000.prepare necessary journal entry since a provision is recognizedPresented below are three independent situations. Situation 1: A company offers a one-year warranty for the product that it manufactures. A history of warranty claims has been compiled, and the probable amounts of claims related to sales for a given period can be determined. Situation 2: Subsequent to the date of a set of financial statements but prior to the issuance of the financial statements, a company enters into a contract that will probably result in a significant loss to the company. The amount of the loss can be reasonably estimated. Situation 3: A company has adopted a policy of recording self-insurance for any possible losses resulting from injury to others by the company's vehicles. The premium for an insurance policy for the same risk from an independent insurance company would have an annual cost of $4,000. During the period covered by the financial statements, there were no accidents involving the company's vehicles that resulted in injury to others. Instructions Discuss…Warranty expenses result when a company sells products then estimates the units and cost per unit for repairs and replacements that may occur during the warranty period. True False
- When products sold with a guarantee of free service or replacement during an extended warranty period, the costs of rendering such services should be recognized as ________________ in the year the product is sold, rather than in a later year in which the replacement is made or the repair service is performed.On January 1,2019, ABC Company introduced a new line of product that carries a 3 year warranty against factory defects. The product warranties provide assurance that the new line of product will function as intended based on agreed-upon specifications.Estimated warranty costs related to peso sales are as follows: 2% of sales in the year of sale, 4% of sales in the year after sale, and 6% of sales in the second year after sale.Sales and warranty expenditures for the period 2019 to 2021 were as follows: Sales Actual warranty expenditures2019 P 5,000,000 P 100,0002020 7,500,00 150,0002021 10,000,000 200,000The company's reporting period is a calendar year.How much is the warranty liability as of December 31,2021?On January 1,2019, ABC Company introduced a new line of product that carries a 3 year warranty against factory defects. The product warranties provide assurance that the new line of product will function as intended based on agreed-upon specifications.Estimated warranty costs related to peso sales are as follows: 2% of sales in the year of sale, 4% of sales in the year after sale, and 6% of sales in the second year after sale.Sales and warranty expenditures for the period 2019 to 2021 were as follows: Sales Actual warranty expenditures2019 P 5,000,000 P 100,0002020 7,500,00 150,0002021 10,000,000 200,000The company's reporting period is a calendar year.How much is the warranty expense for the year 2020? and How much is the warranty liability as of December 31,2021?
