INTERMEDIATE ACCOUNTING 2

WARRANTY LIABLITY

PROBLEM 1
An entity sells 1,500 units of refrigerator sets at ₱15,000 each for cash. Each refrigerator set is
under warranty for one year.
The entity has estimated from past experience that warranty cost will probably average ₱700 per
unit and that only 40% of the units sold will be returned for repair.
The entity incurs ₱190,000 for repairs during the year.

To record the sales:

Cash ₱22,500,00
Sales ₱22,500,000

(1500units x ₱15,000)

To set up the estimated liability on the warranty:

Warranty expense ₱420,000

Estimated warranty liability ₱420,000

Computation:
(40% x 1500 units =600)
(600 x 700 = ₱420,000)

To record the payment of the actual cost:

Estimated warranty liability ₱190,000

Cash ₱190,000
CASH REBATES
PROBLEM 2
Avocado Electronics offered ₱900 cash rebate on a laptop from John. John must present a rebate
coupon that includes in the laptop sold plus the official receipt. The company offers 20% of the
coupons will be redeemed. Avocado Electronics sold 500 units of laptop and total payments to
customer amounted to ₱40,000

To recognize the cash rebate program

Rebate expense ₱90,000

Estimated rebate liability ₱90,000

To record the payments to customers

Estimated rebate liability ₱40,000

Cash ₱40,000
CASH REBATES
PROBLEM 2
Avocado Electronics offered ₱900 cash rebate on a laptop from John. John must present a rebate
coupon that includes in the laptop sold plus the official receipt. The company offers 20% of the
coupons will be redeemed. Avocado Electronics sold 500 units of laptop and total payments to
customer amounted to ₱40,000

To recognize the cash rebate program

Rebate expense ₱900

Estimated rebate liability ₱900

To record the payments to customers

Estimated rebate liability ₱40,000

Cash ₱40,000
MEMBERS
Sumile,Ray Jane C.
Vinta, Yhuridizie D.
Visca, Adelyn B.
Sevilla, Jenifer
Tanjeco, Girlie Ann R.
Santos,Rosenda Marie E.
Ramos, Rosvit B.
De Ala, April Joy P.
Ore, Sean Michael L.
Sayo, Fenella Joy A.
Laylo, Eunice B.