Warranties Focus plc offers a twelve month warranty on certain goods that it sells. The warranty...

Warranties

Focus plc offers a twelve month warranty on certain goods that it sells. The warranty is paid for at the time the sale is made and included in the Sales Revenues account. The full warranty is valued at 10% of the original sale price of the item and about half of the warranty cover has elapsed by the year end. The total on the Sales Revenue account at the year end stands at £10m.

The accountant proposes putting the full £10m in the Statement of Profit or Loss as revenues for 20X6.

State whether you agree with the accountant’s proposal regarding the matter mentioned above. You should explain your reasons for agreeing or disagreeing and explain any alternative treatments that you believe the accountant should use.

Expert Solution

Here, Accountant's proposal regarding the warranty is wrong. Warrenty part of sale revenue should be taken as Provision for warreanty.

In contract law, a warranty is a promise which is not a condition of the contract or an innominate term ,A warranty is not a guarantee. It is a mere promise. It may be enforced if it is breached by an award for the legal remedy of damages.

here, The full warranty is valued at 10% of the original sale price of the item and about half of the warranty cover has elapsed by the year end. The total on the Sales Revenue account at the year end stands at £10m.

Value of warrenty = Pound 10m * 10% = Pound 1m

while making the sale entry 9m can take as sale revene at that time. Then 1m should go to Provision for warranty..

Here , at the year end half of the warrenty cover has elapsed that mean @year end pound 500000 can be added with sale revenue at year end . balance pound 500000 should be the balance in provision for warrenty.

Only after elapsing this it can taken as sale income. or any warrenty expense comes during its one year period it should adjust there.

ekkarill92 answered 1 year ago

Question 1 Jumbo Sales Corporation offers warranties on all their electronic goods. Warranty expense is estimated...

Question 1 Jumbo Sales Corporation offers warranties on all their electronic goods. Warranty expense is estimated at 3% of sales revenue. In 2013, the company had $595,000 of sales. In the same year, it paid out $8,500 of warranty payments. Prepare the journal entry for the warranty expense and the warranty payments. Question 2 On January 1, 2014, Partridge Advertising Company issued $50,000 of 6-year bonds with a stated rate of 3%. The market rate at time of issue was...

Warranties can be created when a seller affirms that the goods meet certain standards of quality,...

Warranties can be created when a seller affirms that the goods meet certain standards of quality, description, performance, or condition. These warranties are a. Express b. Implied c. Executed d. Executory Why A? Your explanation should compare express and implied warranties

A manufacturer offers a 36-month warranty on a new line of its products. Production engineers believe...

A manufacturer offers a 36-month warranty on a new line of its products. Production engineers believe the lifetime, Y, of any randomly selected item from this new line has a normal distribution with mean µ = 45 and standard deviation σ = 7. Accordingly, the probability an item fails within the first 36 months after purchase is Thus, under typical conditions only about 10% of the items will fail early, and, since this percentage is so low, managers and marketers...

Company sells a machine for $6,800 under a 12-month warranty agreement that requires the company to...

Company sells a machine for $6,800 under a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the company sells 500 machines in 2010 (warranty expense is incurred 25% in 2010, 60% in 2011 and 15% in 2012). As a result of product testing, the company estimates that the warranty cost is $380 per machine ($200 parts...

Applebee sells speakers with a 6 month manufacturer’s warranty. At the time of purchase, customers also...

Applebee sells speakers with a 6 month manufacturer’s warranty. At the time of purchase, customers also have an opportunity to buy an extended 1 year warranty. In Year 1 Applebee sold $40,000 of speakers and $12,000 of extended warranties. All sales are credit sales and sales occurred evenly during the year. Applebee is a calendar year entity that records AJE’s and produces financial statements only at year-end. Make a summary JE to record Year 1 sales. Make the related AJE...

Metlock Company sells goods to Bonita Company during 2017. It offers Bonita the following rebates based...

Metlock Company sells goods to Bonita Company during 2017. It offers Bonita the following rebates based on total sales to Bonita. If total sales to Bonita are 9,500 units, it will grant a rebate of 2%. If it sells up to 20,500 units, it will grant a rebate of 5%. If it sells up to 27,400 units, it will grant a rebate of 6%. In the first quarter of the year, Metlock sells 11,300 units to Bonita at a sales...

On average, a firm sells $2,500,000 in merchandise a month. Its cost of goods sold equals...

On average, a firm sells $2,500,000 in merchandise a month. Its cost of goods sold equals 60 percent of sales, and it keeps inventory equal to one-half of its monthly cost of goods on hand at all times. If the firm analyzes its accounts using a 360-day year, what is the firm's inventory conversion period? a. 30 days b. 15 days c. 20 days d. 360 days e. 10 days

The soft goods department of a large department store sells 175 units per month of a...

The soft goods department of a large department store sells 175 units per month of a certain large bath towel. The unit cost of a towel to the store is $2.50 and the cost of placing an order has been estimated to be $12.00. The store uses an inventory carrying charge of 27% per year. Determine the optimal order quantity, order frequency, and the annual cost of inventory management. If, through automation of the purchasing process, the ordering cost can...

Jordan Company, which sells electric razors, had $370,000 of cost of goods sold during the month...

Jordan Company, which sells electric razors, had $370,000 of cost of goods sold during the month of June. The company projects a 7 percent increase in cost of goods sold during July. The inventory balance as of June 30 is $29,000, and the desired ending inventory balance for July is $30,000. Jordan pays cash to settle 75 percent of its purchases on account during the month of purchase and pays the remaining 25 percent in the month following the purchase....

Manual Company sells goods to Nolan Company during 2012. It offers Nolan the following rebates based on total sales to Nolan.

Manual Company sells goods to Nolan Company during 2012. It offers Nolan the following rebates based on total sales to Nolan. If total sales to Nolan are 10,000 units, it will grant a rebate of 2%. If it sells up to 20,000 units, it will grant a rebate of 4%. If it sells up to 30,000 units, it will grant a rebate of 6%. In the first quarter of the year, Manual sells 11,000 units to Nolan at a sales...

Question