During 2020, ABC Company sold appliances that offer product warranties against defects. Based on the entity’s and industry experience, it is estimated that 70% of the products sold have no defects, 20% have minor defects and 10% have major defects. Estimated warranty costs were P 2,000,000 if all products sold have major defects and P 200,000 if all products sold have minor defects. ABC has already incurred P 60,000 of warranty costs relating to appliances sold during 2020. How much liability must be recognize?
During 2020, ABC Company sold appliances that offer product warranties against defects. Based on the entity’s and industry experience, it is estimated that 70% of the products sold have no defects, 20% have minor defects and 10% have major defects. Estimated warranty costs were P 2,000,000 if all products sold have major defects and P 200,000 if all products sold have minor defects. ABC has already incurred P 60,000 of warranty costs relating to appliances sold during 2020. How much liability must be recognize?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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During 2020, ABC Company sold appliances that offer product warranties against defects. Based on the entity’s and industry experience, it is estimated that 70% of the products sold have no defects, 20% have minor defects and 10% have major defects. Estimated warranty costs were P 2,000,000 if all products sold have major defects and P 200,000 if all products sold have minor defects. ABC has already incurred P 60,000 of warranty costs relating to appliances sold during 2020.
How much liability must be recognize?
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