Problem 3. Cebu Music Emporium carries a wide variety of music promotion techniques - warranties and premiums – to attract customers. Musical instrument and sound equipment are sold in a one-year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 2% of sales. The premium is offered on the recorded and sheet music. Customers receive a coupon for each peso spent on recorded music or sheet music. Customers may exchange 200 coupons and P20 for an AM/FM radio. Cebu pays P34 for each radio and estimates that 60% of the coupons given to customers will be redeemed. Cebu's total sales for 2020 were P7,200,000 - P5,400,000 from musical instrument and sound reproduction equipment and P1,800,000 from recorded music and sheet music. Replacement parts and labor for warranty work totaled P164,000 during 2020. A total of 6,500 AM/FM radio used in the premium program were purchased during the year and there were 1,200,000 coupons redeemed in 2020. The accrual method is used by Cebu to account for the warranty and premium costs for financial reporting purposes. The balance in the accounts related to warranties and premiums on January 1, 2020, were as shown below: Inventory of Premium AM/FM radio, P 39,950 Estimated Premium Claims Outstanding, 44,800 Estimated Liability from Warranties, 136,000 Based on the above and the result of your audit, determine the amounts that will be shown on the 2020 financial statements for the following: 10. Warranty expense 11. Estimated liability from warranties 12. Premium expense 13 Inventory of ANM/EM radio
Problem 3. Cebu Music Emporium carries a wide variety of music promotion techniques - warranties and premiums – to attract customers. Musical instrument and sound equipment are sold in a one-year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 2% of sales. The premium is offered on the recorded and sheet music. Customers receive a coupon for each peso spent on recorded music or sheet music. Customers may exchange 200 coupons and P20 for an AM/FM radio. Cebu pays P34 for each radio and estimates that 60% of the coupons given to customers will be redeemed. Cebu's total sales for 2020 were P7,200,000 - P5,400,000 from musical instrument and sound reproduction equipment and P1,800,000 from recorded music and sheet music. Replacement parts and labor for warranty work totaled P164,000 during 2020. A total of 6,500 AM/FM radio used in the premium program were purchased during the year and there were 1,200,000 coupons redeemed in 2020. The accrual method is used by Cebu to account for the warranty and premium costs for financial reporting purposes. The balance in the accounts related to warranties and premiums on January 1, 2020, were as shown below: Inventory of Premium AM/FM radio, P 39,950 Estimated Premium Claims Outstanding, 44,800 Estimated Liability from Warranties, 136,000 Based on the above and the result of your audit, determine the amounts that will be shown on the 2020 financial statements for the following: 10. Warranty expense 11. Estimated liability from warranties 12. Premium expense 13 Inventory of ANM/EM radio
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 3.
Cebu Music Emporium carries a wide variety of music promotion techniques - warranties and premiums –
to attract customers.
Musical instrument and sound equipment are sold in a one-year warranty for replacement of parts and labor. The estimated
warranty cost, based on past experience, is 2% of sales.
The premium is offered on the recorded and sheet music. Customers receive a coupon for each peso spent on recorded music
or sheet music. Customers may exchange 200 coupons and P20 for an AM/FM radio. Cebu pays P34 for each radio and
estimates that 60% of the coupons given to customers will be redeemed.
Cebu's total sales for 2020 were P7,200,000 - P5,400,000 from musical instrument and sound reproduction equipment and
P1,800,000 from recorded music and sheet music. Replacement parts and labor for warranty work totaled P164,000 during
2020. A total of 6,500 AM/FM radio used in the premium program were purchased during the year and there were 1,200,000
coupons redeemed in 2020.
The accrual method is used by Cebu to account for the warranty and premium costs for financial reporting purposes. The
balance in the accounts related to warranties and premiums on January 1, 2020, were as shown below:
Inventory of Premium AM/FM radio, P 39,950
Estimated Premium Claims Outstanding, 44,800
Estimated Liability from Warranties, 136,000
Based on the above and the result of your audit, determine the amounts that will be shown on the 2020 financial statements
for the following:
10. Warranty expense
11. Estimated liability from warranties
12. Premium expense
13. Inventory of AM/FM radio
14. Estimated liability for premiums
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