Bizarre Company gives warranties at the time of sale to purchasers of its product. The entity undertakes to make good, by repair or replacement, manufacturing defects that become apparent within one year from the date of sale. Sales of P10,000,000 were made evenly throughout 2011. The expenditures for warranty repairs and replacements for the products sold in 2011 are expected to be made 50% in 2011 and 50% in 2012. The 2012 outflows of economic benefits related to the warranty will take place on June 30, 2012. Experience indicates that 95% of products sold require no warranty repairs, 3% of products sold require minor repairs costing 10% of the sale price, and 2% of products sold require major repairs or replacement costing 90% of sale price. The appropriate discount factor for cash flows expected to occur on June 30, 2012 is 0.95. An appropriate risk adjustment factor to reflect the uncertainties in the cash flow estimates is an increment of 6% to the probability-weighted expected cash flows. What is the warranty provision on December 31, 2011? a. 210,000 b. 222,600 c. 111,300 d. 105,735
Bizarre Company gives warranties at the time of sale to purchasers of its product. The entity undertakes to make good, by repair or replacement, manufacturing defects that become apparent within one year from the date of sale. Sales of P10,000,000 were made evenly throughout 2011. The expenditures for warranty repairs and replacements for the products sold in 2011 are expected to be made 50% in 2011 and 50% in 2012. The 2012 outflows of economic benefits related to the warranty will take place on June 30, 2012. Experience indicates that 95% of products sold require no warranty repairs, 3% of products sold require minor repairs costing 10% of the sale price, and 2% of products sold require major repairs or replacement costing 90% of sale price. The appropriate discount factor for cash flows expected to occur on June 30, 2012 is 0.95. An appropriate risk adjustment factor to reflect the uncertainties in the cash flow estimates is an increment of 6% to the probability-weighted expected cash flows. What is the warranty provision on December 31, 2011? a. 210,000 b. 222,600 c. 111,300 d. 105,735
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Bizarre Company gives warranties at the time of sale to purchasers of its product. The entity undertakes to make good, by repair or replacement, manufacturing defects that become apparent within one year from the date of sale. Sales of P10,000,000 were made evenly throughout 2011. The expenditures for warranty repairs and replacements for the products sold in 2011 are expected to be made 50% in 2011 and 50% in 2012. The 2012 outflows of economic benefits related to the warranty will take place on June 30, 2012. Experience indicates that 95% of products sold require no warranty repairs, 3% of products sold require minor repairs costing 10% of the sale price, and 2% of products sold require major repairs or replacement costing 90% of sale price. The appropriate discount factor for cash flows expected to occur on June 30, 2012 is 0.95. An appropriate risk adjustment factor to reflect the uncertainties in the cash flow estimates is an increment of 6% to the probability-weighted expected cash flows. What is the warranty provision on December 31, 2011?
a. 210,000
b. 222,600
c. 111,300
d. 105,735
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