C Inc. sells medical equipment. ABC provides its customers an option to purchase a three-year warranty. Warranty contracts sold on 2021, 2022 and 2023 are P720,000, 864,000 and 1,004,000, respectively. Management expects that: 20% of warranty costs are done in the 1st year from the date of sale. 30% of warranty costs are done in the 2nd year from the date of sale. 50% of warranty costs are done in the 3rd year from the date of sale. Actual costs incurred on repairs are P25,000, 100,000 and 200,000, respectively. What amount should be reported a
C Inc. sells medical equipment. ABC provides its customers an option to purchase a three-year warranty. Warranty contracts sold on 2021, 2022 and 2023 are P720,000, 864,000 and 1,004,000, respectively. Management expects that: 20% of warranty costs are done in the 1st year from the date of sale. 30% of warranty costs are done in the 2nd year from the date of sale. 50% of warranty costs are done in the 3rd year from the date of sale. Actual costs incurred on repairs are P25,000, 100,000 and 200,000, respectively. What amount should be reported a
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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ABC Inc. sells medical equipment. ABC provides its customers an
option to purchase a three-year warranty. Warranty contracts sold on 2021, 2022 and
2023 are P720,000, 864,000 and 1,004,000, respectively. Management expects that:
20% of warranty costs are done in the 1st year from the date of sale.
30% of warranty costs are done in the 2nd year from the date of sale.
50% of warranty costs are done in the 3rd year from the date of sale.
Actual costs incurred on repairs are P25,000, 100,000 and 200,000, respectively.
What amount should be reported as liability on warranties on December 31, 2021, 2022
and 2023?
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