Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Question
Chapter 9, Problem 7C
1.
To determine
State the manner by which the Company R should report the estimated product warranty costs f or each of the two types of merchandise and also explain its rationale.
2.
To determine
State the manner by which the Company R should report the suit in its financial statements and also explain its rationale.
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(Warranties and Loss Contingencies) The following two independent situations involve loss contingencies.Part 1: Benson Company sells two products, Grey and Yellow. Each carries a 1-year warranty.1. Product Grey—Product warranty costs, based on past experience, will normally be 1% of sales.2. Product Yellow—Product warranty costs cannot be reasonably estimated because this is a new product line. However, thechief engineer believes that product warranty costs are likely to be incurred.
InstructionsHow should Benson report the estimated product warranty costs for each of the two types of merchandise above? Discuss the rationale for your answer. Do not discuss disclosures that should be made in Benson’s financial statements or notes.
Part 2: Constantine Company is being sued for $4,000,000 for an injury caused to a child as a result of alleged negligence while the child was visiting the Constantine Company plant in March 2017. The suit was filed in July 2017. Constantine’s lawyer states…
In 20X1, Stevens Corp. began a new product line of wearable technology that carries a 24-month warranty against manufacturer defects. Based on industry experience, Stevens expects warranty costs to be an amount equal to approximately 9% of total sales dollars.
During 20X1, new sales of this technology totaled $3,000,000. The costs incurred to satisfy warranty claims in 20X1 was $90,000.
Required: Answer the following two questions.
Question #1: What should Stevens report as the "Warranty Expense" balance on its 20X1 income statement?Answer: Question #2: What should Stevens report as the "Warranty Liability" balance on its balance sheet at 12/31/X1?Answer
Situation 1Kurama Co., a machinery dealer, sells a machine for P22,200 under a 1-year warranty contract that requiresthe company to replace all defective parts and provide the necessary repair labor at no cost to customers. Withsales being made evenly throughout the year, Kurama sells for cash 600 machines in 20x1 (half of the warrantyexpense is incurred in 20x1, half in 20x2.) Based on previous experience, the 10-year warranty costs areestimated to be P510 and P660 labor. Assume that in 20x1, these warranty costs are incurred exactly asestimated.
Required: 1. What amount of warranty expense would be charged against 20x1 revenue? _________2. What amount of warranty liability would appear on the December 31, 20x1 statement of financialposition? __________
Situation 2Cuyos, Inc., a dealer of household appliances, sells washing machines at an average price of P8,100. Thecompany also offers each customer a separate 3-year warranty contract for P810 that requires the company toprovide…
Chapter 9 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 9 - Prob. 1GICh. 9 - Prob. 2GICh. 9 - List the three characteristics of a liability....Ch. 9 - Prob. 4GICh. 9 - Prob. 5GICh. 9 - Prob. 6GICh. 9 - Prob. 7GICh. 9 - Prob. 8GICh. 9 - How does materiality affect the accounting for...Ch. 9 - Distinguish between an interest-bearing note and a...
Ch. 9 - Prob. 11GICh. 9 - How should long-term debt that is callable by a...Ch. 9 - Prob. 13GICh. 9 - Prob. 14GICh. 9 - Prob. 15GICh. 9 - Prob. 16GICh. 9 - Prob. 17GICh. 9 - Prob. 18GICh. 9 - Prob. 19GICh. 9 - Prob. 20GICh. 9 - Prob. 21GICh. 9 - Prob. 22GICh. 9 - Prob. 23GICh. 9 - Prob. 24GICh. 9 - Prob. 25GICh. 9 - Prob. 26GICh. 9 - Prob. 27GICh. 9 - Prob. 28GICh. 9 - The balance in Ashwood Companys accounts payable...Ch. 9 - On September 1, 2019, a company borrowed cash and...Ch. 9 - When a company receives a deposit from a customer...Ch. 9 - Bronson Apparel Inc. operates a retail store and...Ch. 9 - Prob. 5MCCh. 9 - Prob. 6MCCh. 9 - Prob. 7MCCh. 9 - Prob. 8MCCh. 9 - Prob. 9MCCh. 9 - Prob. 10MCCh. 9 - Rescue Sequences LLC purchased inventory by...Ch. 9 - Use the same information in RE9-1 except that the...Ch. 9 - Cee Co.s fiscal year begins April 1. At the...Ch. 9 - Prob. 4RECh. 9 - Prob. 5RECh. 9 - Smith Company is required to charge customers an...Ch. 9 - Wallace Corporation summarizes the following...Ch. 9 - Borat Company gives annual bonuses after the end...Ch. 9 - Prob. 9RECh. 9 - Prob. 10RECh. 9 - After years of experience, Dilcort Company...Ch. 9 - Prob. 1ECh. 9 - Notes Payable On December 1, 2019, Insto Photo...Ch. 9 - Non-Interest-Bearing Notes Payable On November 16,...Ch. 9 - Discounting of Notes Payable On October 30, 2019,...Ch. 9 - Disclosure of Debt On May 1, 2019, Ramden Company...Ch. 9 - Short-Term Debt Expected to Be Refinanced On...Ch. 9 - Short-Term Debt Expected to Be Refinanced On...Ch. 9 - Refundable Deposits Party Warehouse Inc. rents a...Ch. 9 - Prob. 9ECh. 9 - Property Taxes Family Practice Associates has an...Ch. 9 - Prob. 11ECh. 9 - Prob. 12ECh. 9 - Prob. 13ECh. 9 - Prob. 14ECh. 9 - Prob. 15ECh. 9 - Prob. 16ECh. 9 - Prob. 17ECh. 9 - Prob. 18ECh. 9 - Prob. 19ECh. 9 - Prob. 20ECh. 9 - Cash Rebates On January 1, 2020, Fro-Yo Inc. began...Ch. 9 - Prob. 22ECh. 9 - Prob. 1PCh. 9 - Notes Payable and Effective Interest On November...Ch. 9 - Trade Note Transactions Adjusto Corporation (which...Ch. 9 - Prob. 4PCh. 9 - Short-Term Debt Expected to Be Refinanced On...Ch. 9 - Non-Interest-Bearing Note Payable: Present Value...Ch. 9 - Prob. 7PCh. 9 - Prob. 8PCh. 9 - Payroll and Payroll Taxes Bailey Dry Cleaners has...Ch. 9 - Bonus Obligation and Income Tax Expense James...Ch. 9 - Prob. 11PCh. 9 - Contingencies Fallon Company, a toy manufacturer...Ch. 9 - Prob. 13PCh. 9 - Assurance-Type Warranty Clean-All Inc. sells...Ch. 9 - Prob. 15PCh. 9 - Premium Obligation Yummy Cereal Company is...Ch. 9 - Comprehensive Selected transactions of Lizard Lick...Ch. 9 - Comprehensive Selected transactions of Shadrach...Ch. 9 - Prob. 1CCh. 9 - Prob. 2CCh. 9 - Prob. 3CCh. 9 - Pending Damage Suit Disclosure On December 15,...Ch. 9 - Various Contingency Issues Skinner Company has the...Ch. 9 - Prob. 6CCh. 9 - Prob. 7CCh. 9 - Prob. 8CCh. 9 - Prob. 10C
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