Question

The following situations relate to Flounder Company.

Prepare the journal entry to record provisions, if any, for Flounder at December 31, 2017.

No.

Account Titles and Explanation

Debit

Credit

1.

2.

1.

 

Flounder provides a warranty with all its products it sells. It estimates that it will sell 780,000 units of its product for the year ended December 31, 2017, and that its total revenue for the product will be $78,000,000. 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 $4 for each product sold, and the cost for a major defect cost is $12. The company also estimates that the minimum amount of warranty expense will be $1,560,000 and the maximum will be $7,800,000.

 

2.

 

Flounder is involved in a tax dispute with the tax authorities. The most likely outcome of this dispute is that Flounder will lose and have to pay $312,000. The minimum it will lose is $15,600 and the maximum is $1,950,000.

 

 

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