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Provision - Assignment

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April Joy Obedoza

Vanpelt Co. introduced a new machine line in 2020 with a 3-year warranty. Based on prior experience, warranty costs were estimated to be 2% of sales in year 1, 4% in year 2, and 6% in year 3. Sales and actual costs for 2020-2022 were provided. Vanpelt should report a $3,000 warranty liability at the end of 2020 based on the calculations. Palmer Frosted Flakes offered a cereal bowl for sending in 3 box tops and $1. Customers redeemed 60% of estimated box tops. In 2020, Palmer sold 675k boxes and customers redeemed 330k box tops. Palmer should report a $37,500 liability

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Provision - Assignment

Uploaded by

April Joy Obedoza
1K views2 pages
Vanpelt Co. introduced a new machine line in 2020 with a 3-year warranty. Based on prior experience, warranty costs were estimated to be 2% of sales in year 1, 4% in year 2, and 6% in year 3. Sales and actual costs for 2020-2022 were provided. Vanpelt should report a $3,000 warranty liability at the end of 2020 based on the calculations. Palmer Frosted Flakes offered a cereal bowl for sending in 3 box tops and $1. Customers redeemed 60% of estimated box tops. In 2020, Palmer sold 675k boxes and customers redeemed 330k box tops. Palmer should report a $37,500 liability

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Provision

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PROVISION.-ASSIGNMENT

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Vanpelt Co. introduced a new machine line in 2020 with a 3-year warranty. Based on prior experience, warranty costs were estimated to be 2% of sales in year 1, 4% in year 2, and 6% in year 3. Sales and actual costs for 2020-2022 were provided. Vanpelt should report a $3,000 warranty liability at the end of 2020 based on the calculations. Palmer Frosted Flakes offered a cereal bowl for sending in 3 box tops and $1. Customers redeemed 60% of estimated box tops. In 2020, Palmer sold 675k boxes and customers redeemed 330k box tops. Palmer should report a $37,500 liability

Copyright:

© All Rights Reserved
Download as DOCX, PDF, TXT or read online from Scribd
Download as docx, pdf, or txt
1K views2 pages

Provision - Assignment

Uploaded by

April Joy Obedoza
Vanpelt Co. introduced a new machine line in 2020 with a 3-year warranty. Based on prior experience, warranty costs were estimated to be 2% of sales in year 1, 4% in year 2, and 6% in year 3. Sales and actual costs for 2020-2022 were provided. Vanpelt should report a $3,000 warranty liability at the end of 2020 based on the calculations. Palmer Frosted Flakes offered a cereal bowl for sending in 3 box tops and $1. Customers redeemed 60% of estimated box tops. In 2020, Palmer sold 675k boxes and customers redeemed 330k box tops. Palmer should report a $37,500 liability

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1. During 2020, Vanpelt Co.

introduced a new line of machines that carry a three-year warranty against


manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales in the
year of sale, 4% in the year after sale, and 6% in the second year after sale. Sales and actual warranty
expenditures for the first three-year period were as follows:

Sales Actual Warranty Expenditures

2020 P 600,000 P 9,000

2021 1,500,000 45,000

2022 2,100,000 135,000

P4, 200,000 P189,000

What amount should Vanpelt report as a liability at December 31, 2020?

=(600,000 × .02) - 9,000 = P3,000

2. Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 box tops
from Palmer Frosted Flakes boxes and P1.00. The company estimates that 60% of the box tops will be
redeemed. In 2020, the company sold 675,000 boxes of Frosted Flakes and customers redeemed
330,000 box tops receiving 110,000 bowls. If the bowls cost Palmer Company P2.50 each, how much
liability for outstanding premiums should be recorded at the end of 2020?

405,000 (= 60% * 675,000)

405,000 -330,000= 75,000 boxtops  

(25,000 = 75,000/3)

P1.50 (= P2.50-P1)

P37,500 (=P1.50 x 25,000)

3. Blitz Corporation, a manufacturer of cleaning products, is preparing annual financial statements at


December 31, 2020. Because of a recently proven health hazard in one of its cleaning products, the
Philippine government has clearly indicated its intentional of having Blitz recall all cans of this paint sold
in the last three months. The management of Ortiz estimates that this recall would cost P5, 800,000.
What accounting recognition, if any, should be accorded this situation?

=Expense of 5,800,000 and liability of 5,800,000.=

4. Winter Co. is being sued for illness caused to local residents as a result of negligence on the
company’s part in permitting the local residents to be exposed to highly toxic chemicals from its plant.
Winters lawyer states that it is probable that Winter will lose the suit and be found liable for a judgment
costing Winter anywhere from P1,200,000 to P6,000,000. However, the lawyer states that the most
probable cost is 3,600,000. What will be the take of Winter as a result of the above facts on their
financial statements?

a loss contingency of 3,600,000 and additional contingency of up to 2, 400,000=

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