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In recent years, Pina Colada Inc. has reported steadily increasing income. The company reported income of $26,000 in 2020, $32,500 in 2021, and $39,000 in 2022. Several market analysts have recommended that investors buy Pina Colada shares because they expect the steady growth in income to continue. Pina Colada is approaching the end of its 2023 fiscal year, and it looks to be a good year once again. However, it has not yet recorded warranty expense. Based on prior experience, this year's warranty expense should be around $6,500, but some members of top management have approached the controller to suggest that a larger, more conservative warranty expense should be recorded this year. Income before warranty expense is $55,900. Specifically, by recording an $10,400 warranty accrual this year, Pina Colada could report an income increase for this year and still be in a position to cover its warranty costs in future years. (b) Your answer is correct. What would be the effect of the proposed accounting in 2023? In 2024? Proposed Accounting Income: Income before Warranty Expense Warranty Expense Income tA 2023 55900 10400 i 45500 VA VA 2024 55900 2600 53300

In recent years, Pina Colada Inc. has reported steadily increasing income. The company reported income of $26,000 in 2020, $32,500 in 2021, and $39,000 in 2022. Several market analysts have recommended that investors buy Pina Colada shares because they expect the steady growth in income to continue. Pina Colada is approaching the end of its 2023 fiscal year, and it looks to be a good year once again. However, it has not yet recorded warranty expense. Based on prior experience, this year's warranty expense should be around $6,500, but some members of top management have approached the controller to suggest that a larger, more conservative warranty expense should be recorded this year. Income before warranty expense is $55,900. Specifically, by recording an $10,400 warranty accrual this year, Pina Colada could report an income increase for this year and still be in a position to cover its warranty costs in future years. (b) Your answer is correct. What would be the effect of the proposed accounting in 2023? In 2024? Proposed Accounting Income: Income before Warranty Expense Warranty Expense Income tA 2023 55900 10400 i 45500 VA VA 2024 55900 2600 53300

FINANCIAL ACCOUNTING
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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In recent years, Pina Colada Inc. has reported steadily increasing income. The company reported income of $26,000 in 2020, $32,500 in 2021, and $39,000 in 2022. Several market analysts have recommended that investors buy Pina Colada shares because they expect the steady growth in income to continue. Pina Colada is approaching the end of its 2023 fiscal year, and it looks to be a good year once again. However, it has not yet recorded warranty expense. Based on prior experience, this year's warranty expense should be around $6,500, but some members of top management have approached the controller to suggest that a larger, more conservative warranty expense should be recorded this year. Income before warranty expense is $55,900. Specifically, by recording an $10,400 warranty accrual this year, Pina Colada could report an income increase for this year and still be in a position to cover its warranty costs in future years. (b) Your answer is correct. What would be the effect of the proposed accounting in 2023? In 2024? Proposed Accounting Income: Income before Warranty Expense Warranty Expense Income +A $ 2023 55900 10400 45500 VA $ IA 2024 55900 2600 53300
Transcribed Image Text:In recent years, Pina Colada Inc. has reported steadily increasing income. The company reported income of $26,000 in 2020, $32,500 in 2021, and $39,000 in 2022. Several market analysts have recommended that investors buy Pina Colada shares because they expect the steady growth in income to continue. Pina Colada is approaching the end of its 2023 fiscal year, and it looks to be a good year once again. However, it has not yet recorded warranty expense. Based on prior experience, this year's warranty expense should be around $6,500, but some members of top management have approached the controller to suggest that a larger, more conservative warranty expense should be recorded this year. Income before warranty expense is $55,900. Specifically, by recording an $10,400 warranty accrual this year, Pina Colada could report an income increase for this year and still be in a position to cover its warranty costs in future years. (b) Your answer is correct. What would be the effect of the proposed accounting in 2023? In 2024? Proposed Accounting Income: Income before Warranty Expense Warranty Expense Income +A $ 2023 55900 10400 45500 VA $ IA 2024 55900 2600 53300
(c) What is the appropriate accounting in this situation? Appropriate Accounting Income: Income before Warranty Expense Warranty Expense Income $ TA 2023 LA +A 2024
Transcribed Image Text:(c) What is the appropriate accounting in this situation? Appropriate Accounting Income: Income before Warranty Expense Warranty Expense Income $ TA 2023 LA +A 2024
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