Electro 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 P5,000,000 were made evenly throughout 2021. The expenditures for warranty repairs and replacements for the products sold in 2021 are expected to be made 50% in 2021 and 50% in 2022. The 2022 outflows of economic benefits related to the warranty will take place on December 31, 2022. The entity estimated that 75% of products sold require no warranty repairs, 15% of products sold require minor repairs costing P100,000 and 10% of products sold require major repairs costing P400,000. 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. The appropriate discount factor for cash flows expected to occur on December 31, 2022 is 0.94. 1. What amount should be reported as warranty expense for 2021? a. 500,000 b. 498,200 c. 514,100 d. 530,000 2. What amount should be reported as warranty liability on December 31, 2021? a. 265,000 b. 249,100 c. 250,000 d. 235,000 105

Electro 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 P5,000,000 were made evenly throughout 2021. The expenditures for warranty repairs and replacements for the products sold in 2021 are expected to be made 50% in 2021 and 50% in 2022. The 2022 outflows of economic benefits related to the warranty will take place on December 31, 2022. The entity estimated that 75% of products sold require no warranty repairs, 15% of products sold require minor repairs costing P100,000 and 10% of products sold require major repairs costing P400,000. 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. The appropriate discount factor for cash flows expected to occur on December 31, 2022 is 0.94. 1. What amount should be reported as warranty expense for 2021? a. 500,000 b. 498,200 c. 514,100 d. 530,000 2. What amount should be reported as warranty liability on December 31, 2021? a. 265,000 b. 249,100 c. 250,000 d. 235,000 105

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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