Tony's Lawn Equipment sells high-quality lawn mowers and offers a 3-year warranty on all new lawn mowers sold. In 2025, Tony sold $282,900 of new specialty mowers for golf greens for which Tony's service department does not have the equipment to do the service. Tony has entered into an agreement with Mower Mavens to provide all warranty service on the special mowers sold in 2025. Tony wishes to measure the fair value of the agreement to determine the warranty liability for sales made in 2025. The controller for Tony's Lawn Equipment estimates the following expected warranty cash outflows associated with the mowers sold in 2025. Year 2026 2027 2028 Cash Flow Estimate $2,440 3,930 5,460 $2,900 5,440 5,560 $3,980 5,860 6,510 Probability Assessment 20% 60% 20% 30% 50% 20% 30% 40% 30%

Tony's Lawn Equipment sells high-quality lawn mowers and offers a 3-year warranty on all new lawn mowers sold. In 2025, Tony sold $282,900 of new specialty mowers for golf greens for which Tony's service department does not have the equipment to do the service. Tony has entered into an agreement with Mower Mavens to provide all warranty service on the special mowers sold in 2025. Tony wishes to measure the fair value of the agreement to determine the warranty liability for sales made in 2025. The controller for Tony's Lawn Equipment estimates the following expected warranty cash outflows associated with the mowers sold in 2025. Year 2026 2027 2028 Cash Flow Estimate $2,440 3,930 5,460 $2,900 5,440 5,560 $3,980 5,860 6,510 Probability Assessment 20% 60% 20% 30% 50% 20% 30% 40% 30%

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 10E

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Morgan's Lawn Equipment sells high-quality lawn mowers and offers a 3-year warranty on all new lawn mowers sold. In 2025, Morgan sold $296,100 of new specialty mowers for golf greens for which Morgan's service department does not have the equipment to do the service. Morgan has entered into an agreement with Mower Mavens to provide all warranty service on the special mowers sold in 2025. Morgan wishes to measure the fair value of the agreement to determine the warranty liability for sales made in 2025. The controller for Morgan's Lawn Equipment estimates the following expected warranty cash outflows associated with the mowers sold in 2025. Year 2026 2027 2028 Cash Flow Estimate $2,440 4,260 4,650 $3,080 5,250 6,200 $4,320 6,550 6,630 Probability Assessment 20% 60% 20% 30% 50% 20% 30% 40% 30%
Danny’s Lawn Equipment sells high-quality lawn mowers and offers a 3-year warranty on all new lawn mowers sold. In 2020, Danny sold $300,000 of new specialty mowers for golf greens for which Danny’s service department does not have the equipment to do the service. Danny has entered into an agreement with Mower Mavens to provide all warranty service on the special mowers sold in 2020. Danny wishes to measure the fair value of the agreement to determine the warranty liability for sales made in 2020. The controller for Danny’s Lawn Equipment estimates the following expected warranty cash outflows associated with the mowers sold in 2020. Year Cash FlowEstimate ProbabilityAssessment 2021 $2,500 20% 4,000 60% 5,000 20% 2022 $3,000 30% 5,000 50% 6,000 20% 2023 $4,000 30% 6,000 40% 7,000 30% Instructions Using expected cash flow and present value techniques, determine the value of the warranty liability for the 2020 sales. Use an annual…
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