MG automobiles LLC issue warranties at the time of sale to purchasers of its vehicles. Under the terms of the sale contract the company undertakes to make good any manufacturing defects that become apparent within three years from the date of sale. In the period it has sold 1,000,000 worth of vehicles were sold by the company in the year 2020 and as per the past experience there is an estimated 5% defects in its vehicle sold. Considering the above situation identify the correct statement from the following. MG automobiles LLC need to create a contingent liability MG automobiles LLC need to create a provision MG automobiles LLC need to create a contingent Asset MG automobiles LLC need to not do any adjustment

MG automobiles LLC issue warranties at the time of sale to purchasers of its vehicles. Under the terms of the sale contract the company undertakes to make good any manufacturing defects that become apparent within three years from the date of sale. In the period it has sold 1,000,000 worth of vehicles were sold by the company in the year 2020 and as per the past experience there is an estimated 5% defects in its vehicle sold. Considering the above situation identify the correct statement from the following. MG automobiles LLC need to create a contingent liability MG automobiles LLC need to create a provision MG automobiles LLC need to create a contingent Asset MG automobiles LLC need to not do any adjustment

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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Denim, Inc. entered into a contract to sell equipment to Levi LLC. on October 1, 2021. Along with the equipment, Denim Inc. will provide one-year maintenance services on an as-needed basis, beginning once the equipment is installed. Denim offers similar services to other customers that purchased equipment sold by other vendors for $20,000. Denim Inc. will also provide installation services at no additional cost, a service that Denim Inc. typically charges $10,000. The equipment normally sells for $170,000 on its own. For the package deal, Levi LLC. agrees to pay a total of $180,000. The equipment was delivered and installed on November 1, 2021. Levi LLC. paid the entire invoice in cash on the delivery and installation date. How much revenue should Denim Inc. allocate to the various performance obligations in the above contract (round to the nearest dollar, if needed)?
During 2020, the Thomas Company began selling a new type of machine that carries a two-year assurance-type warranty against all defects. Based on past industry and company experience, estimated warranty costs should total $1,000 per machine sold. During 2020, sales and actual warranty expenditures were $5,000,000 (100 machines) and $44,000, respectively. Thomas uses the GAAP approach of accruing warranty expense (and the related liability) in the year of the sale.
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Bruno Mars Company enters into a contract with John Legend to deliver Products X and Y in exchange for a non- interest bearing note with a face value of P192,685.38, on January 1, 2020. Product X will be delivered in December 31, 2021 and Product Y in December 31, 2024. Upon delivery of product X, Bruno Mars will receive P42,135 and the remaining P150,550.38 will be received upon delivery of Product Y. The contract is non-cancellable. Bruno normally sells Product X at P43,750 cash price equivalent while Product Y can be sold at P131,250. Nonetheless, due to the nature of the bundled purchase, John Legend is given a favorable pricing. A financing rate of 6% is appropriate based on Bruno’s credit-standing at contract inception. Bruno uses December 31 as its year end. How much total revenue can Bruno report in its December 31, 2021 income statement? How much total revenue can Bruno report in its December 31, 2024 income statement?
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