Reference no: EM132676937
Questions -
Q1. Sarasota Corporation manufactures a line of amplifiers that carry a three-year warranty against defects. Based on experience, the estimated warranty costs related to dollar sales are as follows: first year after sale-1% of sales; second year after sale-2% of sales; and third year after sale-3% of sales. Sales and actual warranty expenditures for the first three years of business were:
|
|
Sales Warranty
|
Expenditures
|
|
2018
|
$840,000
|
$16,800
|
|
2019
|
1,150,000
|
47,800
|
|
2020
|
1,066,000
|
87,000
|
Calculate the amount that Sarasota Ltd. should report as warranty expense on its 2020 income statement and as a warranty liability on its December 31, 2020 SFP using the assurance-type warranty (expense-based approach). Assume that all sales are made evenly throughout each year and that warranty expenditures are also evenly spaced according to the rates above.
Q2. Flint Corp. was recently sued by a competitor for patent infringement. Lawyers have determined that it is probable (and very likely) that Flint will lose the case, and that Flint will have to pay between $110,000 and $310,000 in damages. Flint follows IFRS.
What entry, if any, should Flint record in respect of this lawsuit?
What entry, if any, should Flint record in respect of this lawsuit assuming that Flint follows ASPE?