Ben & Ben Music Company carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music. Ben & Ben uses two sales promotion techniques namely (a ) warranties and ( b) premiums, to attract customers. Musical instruments and sound equipment are sold with one- year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 2 % of sales. The premium is offered on the recorded and sheet music. Customers receive a coupon for each peso spent on recorded music or sheet music. Customers may exchange 200 coupons and P 20 for a cassete player and estimates that 60% of the coupons given to the customers will be redeemed. Ben & Ben's total sales for 2021 were P 7,200,000; P 5,400,000 from musical instruments and sound reproduction equipment andP 1,800,000 from work totaled P 164,000 during 2021. A total of 6,500 cassette players used in the premium program were purchased during the year and there were 1,200,000 coupons redeemed in 2021. The accrual method is used by Ben & Ben to account for warranty and premium costs for financial reporting purposes. The balance in the accounts related to warranties and premiums on January 1, 2021 are shown below: Inventory of Premium Cassette Players P 39,950 Estimated Premium Claims outstanding 44,800 Estimated Liability from Warranties 136,000
Ben & Ben Music Company carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music. Ben & Ben uses two sales promotion techniques namely (a ) warranties and ( b) premiums, to attract customers. Musical instruments and sound equipment are sold with one- year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 2 % of sales. The premium is offered on the recorded and sheet music. Customers receive a coupon for each peso spent on recorded music or sheet music. Customers may exchange 200 coupons and P 20 for a cassete player and estimates that 60% of the coupons given to the customers will be redeemed. Ben & Ben's total sales for 2021 were P 7,200,000; P 5,400,000 from musical instruments and sound reproduction equipment andP 1,800,000 from work totaled P 164,000 during 2021. A total of 6,500 cassette players used in the premium program were purchased during the year and there were 1,200,000 coupons redeemed in 2021. The accrual method is used by Ben & Ben to account for warranty and premium costs for financial reporting purposes. The balance in the accounts related to warranties and premiums on January 1, 2021 are shown below: Inventory of Premium Cassette Players P 39,950 Estimated Premium Claims outstanding 44,800 Estimated Liability from Warranties 136,000
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter9: Current Liabilities And Contingent Obligations
Section: Chapter Questions
Problem 10RE
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At what amount should the Warranty Expense and Premium Expense be shown in the DEc. 31, 2021 profit or loss of Ben & Ben Music Co.?
Transcribed Image Text:Ben & Ben Music Company carries a wide variety of musical instruments, sound
reproduction equipment, recorded music, and sheet music. Ben & Ben uses two
sales promotion techniques namely (a ) warranties and ( b) premiums, to attract
customers.
Musical instruments and sound equipment are sold with one- year warranty for
replacement of parts and labor. The estimated warranty cost, based on past
experience, is 2 % of sales.
The premium is offered on the recorded and sheet music. Customers receive a
coupon for each peso spent on recorded music or sheet music. Customers may
exchange 200 coupons and P 20 for a cassete player and estimates that 60% of
the coupons given to the customers will be redeemed.
Ben & Ben's total sales for 2021 were P 7,200,000; P 5,400,000 from musical
instruments and sound reproduction equipment and P 1,800,000 from work
totaled P 164,000 during 2021. A total of 6,500 cassette players used in the
premium program were purchased during the year and there were 1,200,000
coupons redeemed in 2021.
The accrual method is used by Ben & Ben to account for warranty and premium
costs for financial reporting purposes. The balance in the accounts related to
warranties and premiums on January 1, 2021 are shown below:
Inventory of Premium Cassette Players
P 39,950
Estimated Premium Claims outstanding
44,800
Estimated Liability from Warranties
136,000
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