Situation 1 Kurama Co., a machinery dealer, sells a machine for P22,200 under a 1-year warranty contract that requires the company to replace all defective parts and provide the necessary repair labor at no cost to customers. With sales being made evenly throughout the year, Kurama sells for cash 600 machines in 20x1 (half of the warranty expense is incurred in 20x1, half in 20x2.) Based on previous experience, the 10-year warranty costs are estimated to be P510 and P660 labor. Assume that in 20x1, these warranty costs are incurred exactly as estimated. Required: 1. What amount of warranty expense would be charged against 20x1 revenue? _________ 2. What amount of warranty liability would appear on the December 31, 20x1 statement of financial position? __________
Case 3
Presented below are two (2) independent situations. Answer the questions at the end of each situation.
Situation 1
Kurama Co., a machinery dealer, sells a machine for P22,200 under a 1-year warranty contract that requires
the company to replace all defective parts and provide the necessary repair labor at no cost to customers. With
sales being made evenly throughout the year, Kurama sells for cash 600 machines in 20x1 (half of the warranty
expense is incurred in 20x1, half in 20x2.) Based on previous experience, the 10-year warranty costs are
estimated to be P510 and P660 labor. Assume that in 20x1, these warranty costs are incurred exactly as
estimated.
Required:
1. What amount of warranty expense would be charged against 20x1 revenue? _________
2. What amount of warranty liability would appear on the December 31, 20x1
position
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