The following situations relate to Washburn Company. 1. Washburn provides a warranty with all its products...
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The following situations relate to Washburn Company. 1. Washburn provides a warranty with all its products it sells. It estimates that it will sell 1,200,000 units of its product for the year ended December 31, 2015, and that its total revenue for the product will be $100,000,000. It also estimates that 60% of the product will have no defects, 30% will have major defects, and 10% will have minor defects. The cost of a minor defect is estimated to be $5 for each product repaired, and the cost for a major defect cost is $15. The company also estimates that the minimum amount of warranty expense will be $2,500,000 and the maximum will be $12,000,000. 2. Washburn is involved in a tax dispute with the tax authorities. The most likely outcome of this dispute is that Washburn will lose and have to pay $500,000. The minimum it will lose is $25,000 and the maximum is $3,000,000. 3. Washburn has a policy of refunding purchases to dissatisfied customers, even though it is under no obligation to do so. However, it has created a valid expectation with its customers to continue this practice. These refunds can range from 5% of sales to 9% of sales, with any amount in between a reasonable possibility. In 2015, Washburn has $50,000,000 of sales subject to possible refund. Instructions Prepare the journal entry to record provisions, if any, for Washburn at December 31, 2015. The following situations relate to Washburn Company. 1. Washburn provides a warranty with all its products it sells. It estimates that it will sell 1,200,000 units of its product for the year ended December 31, 2015, and that its total revenue for the product will be $100,000,000. It also estimates that 60% of the product will have no defects, 30% will have major defects, and 10% will have minor defects. The cost of a minor defect is estimated to be $5 for each product repaired, and the cost for a major defect cost is $15. The company also estimates that the minimum amount of warranty expense will be $2,500,000 and the maximum will be $12,000,000. 2. Washburn is involved in a tax dispute with the tax authorities. The most likely outcome of this dispute is that Washburn will lose and have to pay $500,000. The minimum it will lose is $25,000 and the maximum is $3,000,000. 3. Washburn has a policy of refunding purchases to dissatisfied customers, even though it is under no obligation to do so. However, it has created a valid expectation with its customers to continue this practice. These refunds can range from 5% of sales to 9% of sales, with any amount in between a reasonable possibility. In 2015, Washburn has $50,000,000 of sales subject to possible refund. Instructions Prepare the journal entry to record provisions, if any, for Washburn at December 31, 2015.
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Related Book For
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
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