DEF, Inc. sells widgets with a warranty under which customers are covered for the cost...
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Accounting
DEF, Inc. sells widgets with a warranty under which customers are covered for the cost of repairs of any manufacturing defects that become apparent within the first six months after purchase. Hint: this problem may require FASB Codification research.
Required:
a)
DEF, Inc. estimates that if defects were detected in all products sold, repair costs would range from:
Low end of range
$2,000,000
Minor repairs
High end of range
$4,000,000
Major repairs
Assume no particular outcome within the range of $2 to $4 million is better than another. Prepare the required journal entry.
Using the same facts from part a) above, assume DEF, Inc. performs an analysis on the historical data of returns and estimates (based on historical data) finding that:
Estimated to be:
Goods sold with no defects
75%
of all goods sold
Goods sold with minor defects
20%
of all goods sold
Goods sold with major defects
5%
of all goods sold
Prepare the required journal entry.
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