With the goal of attracting as many customers as possible in the CAR region, LISA Appliance Co. engaged in a customer satisfaction program and marketing strategy for two of their major lines of products: (1) electrical appliances and (2) household and office furniture. All branches in the region are participating in the company’s promotions. In the customer satisfaction program, LISA provides one-year warranty replacement of parts and labor of the electrical appliances sold. Based on past experience, the estimated warranty cost is 3% of sales. In 2021, total sales of electrical appliances were ₱7,200,000. Replacement parts and labor for warranty work totaled ₱184,000 during 2021. In the company’s marketing strategy for the household and office furniture section, customers are given a coupon for every ₱1,000 spent on these items. Customers may exchange 10 coupons plus ₱500 for a “hot and cold” water dispenser. Each water dispenser costs ₱1,200 and estimates that 40% of the coupons given to customers will be redeemed. In 2021, sales of household and office furniture totaled ₱2,600,000. A total of 100 water dispensers used in the promo were purchased and there were 800 coupons redeemed in 2021. The accrual method is used by LISA to account for the warranty and premium costs for financial reporting purposes. The balances in the accounts related to warranties and premiums on January 1, 2021, were shown as follows: Inventory of “hot and cold” water dispensers - 30 units; Estimated premiums claims outstanding -₱ 17,500; Estimated liability for warranty - ₱80,000. How much is the premium inventory (prepaid expense) reported as of December 31, 2021? a. ₱ 124,800 b. ₱ 35,000 c. ₱ 60,000 d. ₱ 120,000

Principles of Accounting Volume 1

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ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter12: Current Liabilities

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Problem 1PA: Consider the following situations and determine (1) which type of liability should be recognized...

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6. With the goal of attracting as many customers as possible in the CAR region, LISA Appliance Co. engaged in a customer satisfaction program and marketing strategy for two of their major lines of products: (1) electrical appliances and (2) household and office furniture. All branches in the region are participating in the company’s promotions. In the customer satisfaction program, LISA provides one-year warranty replacement of parts and labor of the electrical appliances sold. Based on past experience, the estimated warranty cost is 3% of sales. In 2021, total sales of electrical appliances were ₱7,200,000. Replacement parts and labor for warranty work totaled ₱184,000 during 2021. In the company’s marketing strategy for the household and office furniture section, customers are given a coupon for every ₱1,000 spent on these items. Customers may exchange 10 coupons plus ₱500 for a “hot and cold” water dispenser. Each water dispenser costs ₱1,200 and estimates that 40% of the coupons given to customers will be redeemed. In 2021, sales of household and office furniture totaled ₱2,600,000. A total of 100 water dispensers used in the promo were purchased and there were 800 coupons redeemed in 2021. The accrual method is used by LISA to account for the warranty and premium costs for financial reporting purposes. The balances in the accounts related to warranties and premiums on January 1, 2021, were shown as follows: Inventory of “hot and cold” water dispensers - 30 units; Estimated premiums claims outstanding -₱ 17,500; Estimated liability for warranty - ₱80,000. How much is the premium inventory (prepaid expense) reported as of December 31, 2021?

a. ₱ 124,800

b. ₱ 35,000

c. ₱ 60,000

d. ₱ 120,000

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