Cloudrain Co gives a one-year warranty with all products and the rate of returns under warranty is 12%. 5% of the returned items can be repaired at a cost of €5 (free of charge to the customer). The other 95% are scrapped and a full refund of €30 is given. Cloudrain Co sold 525,000 units during the year to 31 December 2020. What is the amount of the warranty provision that should be created at 31 December 2020? €1,890,000 €1,811,250 €1,795,500

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
Cloudrain Co gives a one-year warranty with all products and the rate of returns under warranty is
12%. 5% of the returned items can be repaired at a cost of €5 (free of charge to the customer). The
other 95% are scrapped and a full refund of €30 is given. Cloudrain Co sold 525,000 units during
the year to 31 December 2020.
What is the amount of the warranty provision that should be created at 31 December 2020?
€1,890,000
€1,811,250
€1,795,500
€1,575,000
Transcribed Image Text:Cloudrain Co gives a one-year warranty with all products and the rate of returns under warranty is 12%. 5% of the returned items can be repaired at a cost of €5 (free of charge to the customer). The other 95% are scrapped and a full refund of €30 is given. Cloudrain Co sold 525,000 units during the year to 31 December 2020. What is the amount of the warranty provision that should be created at 31 December 2020? €1,890,000 €1,811,250 €1,795,500 €1,575,000
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Accounting for Guarantees and Warranties
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education