ACCT2241 – Introductory Financial Accounting - Fall 2011
(due Saturday, November 19, 2011 at 10:00PM)
1. Your assignment must be completed in Word or Excel and saved using the filename: yourlastnamefirstinitial_HW8 (i.e., SmithJ_HW8)
2. This is an individual assignment. While you may discuss concepts from this assignment with your classmates, please remember that it is expected that the assignment will be completed and submitted on an individual basis.
3. Assignment must be submitted via Blackboard. Late submissions will NOT be accepted.
On May 1, 2011, XYZ Corp. borrows $50,000 from its bank and signs a promissory note to ...view middle of the document...
Its main product, Home-Gym-Kit, is sold with a three-year warranty against defects. The company expects that 1% of all the units sold will prove to be defective in the first year after they are sold, 2% will prove to be defective in the second year, and 3% of the units sold will prove to be defective in the third year. The average cost to repair or replace a defective unit under warranty is expected to be $50. The company’s sales and warranty costs incurred during its first three years were as follows:
|Year |Units sold |Actual costs of repairs and replacements |
| | |under the warranty plan |
|2011 |9,000 units |$5,000 |
|2012 |12,000 units |$16,000 |
|2013 |17,000 units |$37,000 |
(1) Calculate the amount that should have appeared in the warranty obligation (liability) account at the end of 2011.
(2) Calculate the amount of warranty expense that should have been recognized in 2012.
(3) Considering the costs incurred to the end of 2013, do you think the company’s estimates regarding the warranty costs were too high, or just about right? Explain your reasoning.
On April 1, 2011, while shopping for new furniture for her home, a world-renowned super-model, Eva Cranks, tripped on an electrical cable that has been left on the showroom floor and broke her ankle. On June 10, 2011, Ms. Cranks sued the furniture store for $5 million. The case came to trial on September 13, 2011, and the court reached a decision on December 23, 2011, finding the store liable and awarding Ms. Cranks the sum of $1.5 million. Dissatisfied with the first judgment, the...