14. Humanizer Company gives warranties at the time of sale to purchasers of its product. Under the terms of the sale, the entity undertakes to make good, by repair or replacement, manufacturing defects that become apparen“ within one year from the date of sale. On December 31, 2011, the entity appropriately recognized P50,000 warranty provision. The entity incurred and charged P140,000 agains the warranty provision in 2012. Out of the P140,000, an amount of P80,000 related to warranties for sales made in 2012. The increase during 2012 in the discounted amount recognized as a provision on December 31, 2011 arising from the passage of time is P2,000. On December 31, 2012, the entity estimated tha it would incur expenditures in 2013 to meet its warranty obligations on December31, 2012 as follows: 5% probability of P400,000; 20% probability of P200,000; 50% probability of P 80,000; 25% probability
14. Humanizer Company gives warranties at the time of sale to purchasers of its product. Under the terms of the sale, the entity undertakes to make good, by repair or replacement, manufacturing defects that become apparen“ within one year from the date of sale. On December 31, 2011, the entity appropriately recognized P50,000 warranty provision. The entity incurred and charged P140,000 agains the warranty provision in 2012. Out of the P140,000, an amount of P80,000 related to warranties for sales made in 2012. The increase during 2012 in the discounted amount recognized as a provision on December 31, 2011 arising from the passage of time is P2,000. On December 31, 2012, the entity estimated tha it would incur expenditures in 2013 to meet its warranty obligations on December31, 2012 as follows: 5% probability of P400,000; 20% probability of P200,000; 50% probability of P 80,000; 25% probability
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![14. Humanizer Company gives
warranties at the time of sale
to purchasers of its product.
Under the terms of the sale,
the entity undertakes to make
good, by repair or
replacement, manufacturing
defects that become apparent
within one year from the date
of sale. On December 31, 2011,
the entity appropriately
recognized P50,000 warranty
provision. The entity incurred
and charged P140,000 against
the warranty provision in 2012.
Out of the P140,000, an
amount of P80,000 related to
warranties for sales made in
2012. The increase during 2012
in the discounted amount
recognized as a provision on
December 31, 2011 arising
from the passage of time is
P2,000. On December 31,
2012, the entity estimated that
it would incur expenditures in
2013 to meet its warranty
obligations on December31,
2012 as follows: 5% probability
of P400,000; 20% probability
of P200,000; 50% probability
of P 80,000; 25% probability
of P20,000. Assume for
simplicity that the 2013 cash
flows for warranty repairs and
replacements take place on
June 30, 2013. An appropriate
discount rate is 10% per year.
The PV of I at 10% for one year
is 0.91 and the PV of 1 at 10%
for 6 months is 0.95. An
appropriate risk adjustment
factor to reflect the
uncertainties in the cashflow
estimates is an increment of
8% to the probability-
weighted expected cash
flows. What is the warranty
expense to be recognized in
2012? *
a. 107,730
b. 195,730
c. 187,730
O d. 185,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4530d1e8-bfcd-4921-a840-e866079be199%2F64d2add3-d3cd-4698-bc7e-87480641e022%2Fnswp2f4_processed.jpeg&w=3840&q=75)
Transcribed Image Text:14. Humanizer Company gives
warranties at the time of sale
to purchasers of its product.
Under the terms of the sale,
the entity undertakes to make
good, by repair or
replacement, manufacturing
defects that become apparent
within one year from the date
of sale. On December 31, 2011,
the entity appropriately
recognized P50,000 warranty
provision. The entity incurred
and charged P140,000 against
the warranty provision in 2012.
Out of the P140,000, an
amount of P80,000 related to
warranties for sales made in
2012. The increase during 2012
in the discounted amount
recognized as a provision on
December 31, 2011 arising
from the passage of time is
P2,000. On December 31,
2012, the entity estimated that
it would incur expenditures in
2013 to meet its warranty
obligations on December31,
2012 as follows: 5% probability
of P400,000; 20% probability
of P200,000; 50% probability
of P 80,000; 25% probability
of P20,000. Assume for
simplicity that the 2013 cash
flows for warranty repairs and
replacements take place on
June 30, 2013. An appropriate
discount rate is 10% per year.
The PV of I at 10% for one year
is 0.91 and the PV of 1 at 10%
for 6 months is 0.95. An
appropriate risk adjustment
factor to reflect the
uncertainties in the cashflow
estimates is an increment of
8% to the probability-
weighted expected cash
flows. What is the warranty
expense to be recognized in
2012? *
a. 107,730
b. 195,730
c. 187,730
O d. 185,000
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