Pleasant Co. manufactures specialty bike accessories. The company is known for product quality, and it has offered one of the best warranties in the industry on its higher-priced products a lifetime guarantee, performing all the warranty work in its own shops. The warranty on these products is included in the sales price. Due to the recent introduction and growth in sales of some products targeted to the low-price market, Pleasant is considering partnering with another company to do the warranty work on this line of products, if customers purchase a service contract at the time of original product purchase. Pleasant has called you to advise the company on the accounting for this new warranty arrangement. a. Identify the accounting literature that addresses the accounting for the type of separately priced extended warranty that Pleasant is considering. b. When are warranty contracts considered separately priced? c. When shall a loss be recognized on an extended warranty?
Pleasant Co. manufactures specialty bike accessories. The company is known for product quality, and it has offered one of the best warranties in the industry on its higher-priced products a lifetime guarantee, performing all the warranty work in its own shops. The warranty on these products is included in the sales price. Due to the recent introduction and growth in sales of some products targeted to the low-price market, Pleasant is considering partnering with another company to do the warranty work on this line of products, if customers purchase a service contract at the time of original product purchase. Pleasant has called you to advise the company on the accounting for this new warranty arrangement. a. Identify the accounting literature that addresses the accounting for the type of separately priced extended warranty that Pleasant is considering. b. When are warranty contracts considered separately priced? c. When shall a loss be recognized on an extended warranty?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Pleasant Co. manufactures specialty bike accessories. The company is known for product
quality, and it has offered one of the best warranties in the industry on its higher-priced
products a lifetime guarantee, performing all the warranty work in its own shops. The warranty
on these products is included in the sales price.
Due to the recent introduction and growth in sales of some products targeted to the low-price
market, Pleasant is considering partnering with another company to do the warranty work on this
line of products, if customers purchase a service contract at the time of original product
purchase. Pleasant has called you to advise the company on the accounting for this new warranty
arrangement.
a. Identify the accounting literature that addresses the accounting for the type of separately
priced extended warranty that Pleasant is considering.
b. When are warranty contracts considered separately priced?
c. When shall a loss be recognized on an extended warranty?
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