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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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.
What amount should ABC Company report as warranty liability as of December 31,2020?
O P 34,800,000
O P 36,300,000
O P 58,050,000
O P 34,300,000
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