ABC Company started its business in 2019. It sells an equipment with a 3- year warranty. ABC estimates its warranty costs as a percentage of peso sales. Based on past experience, it is estimated that 4% will be repaired in the first year of warranty, 8% on the second year of warranty and 10% at the last year of warranty period. In 2019, 2020 and 2021, the company was able to sell 10.000 units, 12.000 units and 15,000 units, respectively at a selling price of P 7,500 per unit. The company also incurred actual repair costs of P 500,000, P 1,000,000, and 1,500,000 for years 2019,2020 and 2021, respectively.

ABC Company started its business in 2019. It sells an equipment with a 3- year warranty. ABC estimates its warranty costs as a percentage of peso sales. Based on past experience, it is estimated that 4% will be repaired in the first year of warranty, 8% on the second year of warranty and 10% at the last year of warranty period. In 2019, 2020 and 2021, the company was able to sell 10.000 units, 12.000 units and 15,000 units, respectively at a selling price of P 7,500 per unit. The company also incurred actual repair costs of P 500,000, P 1,000,000, and 1,500,000 for years 2019,2020 and 2021, respectively.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter9: Current Liabilities And Contingent Obligations

Section: Chapter Questions

Problem 10RE

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ABC Corporation started its business in 2019. It sells printers with a 3-year warranty. ABC corporation estimates its warranty cost as a percentage of peso sales. Based on past experience, it is estimated that 2% will be repaired during the first year of warranty, 4% will be repaired during the second year of warranty and 6% will be repaired in the third year.In 2019 and 2020, the company was able to sell 7,500 units and 8,400 units, respectively at a selling price of P 5,000 per unit. The company also incurred actual repair costs of P 530,000 and P 1,176,000 in 2019 and 2020, respectively.What amount should ABC Corporation report as warranty expense in 2019?
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Sam company started business in 2020. It sells printers with a three-year warranty. Sam company estimates its warranty cost as a percentage of peso sales. Based on past experience, it is estimated that 2% will be repaired during the first year of warranty, 4% will be repaired during the second year of warranty and 6% will be repaired in the third year. In 2020 and 2021, the company was able to sell 7,500 units and 8,400 units, respectively at a selling price of P5,000 unit. The company also incurred actual repair costs of P530,000 and P1,176,000 in 2020 and 2021, respectively. What amount should Sam Company report as warranty expense in 2020? What is the amount of liability for warranty reported in Sam Company’s December 31, 2021 statement of financial position? Assuming that sales and repair occur evenly throughout the period, how much would be the liability for warranty in the December 31, 2021 statement of financial position?
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Gen sells cellular phones. Each phone sells for P10,000 and carries a warranty against defects of period of 1 year counting from the date of purchase. The firm sold 60,000 phones in 2019. Past experience indicates that 10% of the phones will need some type of repair during the warranty period. In the past, the firm has incurred expenditures at P400 on each telephone needing repair due to manufacturing defects. At the beginning of the year, the Estimate Liability for Warranties account had a credit of P59,400. Actual expenditures during the year amounted to P1.5M. The balance of the Estimated Liability for Warranties at year-end is: O 500,000 O 2,400,000 O 1,500,000 0 950,000
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