Question7 1 pts IReviewl In the last quarter of 2018, Jumping-Jax, Inc. sold tra

Question

Question7 1 pts IReviewl In the last quarter of 2018, Jumping-Jax, Inc. sold trampolines for total sales of $12,000. The trampolines come with a 2-year warranty, and most of the warranty work is expected to be performed in 2019 and 2020. Based on past experience, Jumping-Jax estimates that warranty expenses will equal 2% of sales, an amount that is considered "material." How should Jumping-Jax account for warranty expense for the trampolines sold in the last quarter of 2018? O Recognize estimated warranty expenses and estimated warranty liability in 2018, in the amount of 2% of sales. O wait and recognize warranty expenses in 2019 and 2020 when the repairs actually occur. O Jumping-Jax does not need to account for warranty expenses because they are estimated to be only 2% of sales. O Recognize warranty expenses and warranty liability in 2018, but only for the amount of repairs actually completed in 2018

Explanation / Answer

Question 7:

The answer is (a) Recognise estimated warranty expenses and estimated warranty liability in 2018 i.e., 2% of sales.

Reason:

As per IAS 37, the provision for warranty expenses is to be recognised, When an obligating event occurs (sale of product with a warranty and probable warranty claims will be made)...

Here, the warranty sale is made and it is certain that the company will have to incur warranty expense in 2019 and 2020... Also, the estimation can be reliably made, here it is 2% of sales=12000*2/100=2400...

Since, all conditions are satisfied, we should create provision in 2018 itself....but the ones which are expected to be done in 2019 can be kept under current and others under non current.

Question 9:

The principal amount=5000$

Term 3 months

Rate=6% p.a

So, in order to calculate amount of interest accrued on december 31st, we have to calculate one month interest.

Total Interest for 3 months= 5000*6/100*3/12 =$ 75

Interest accrued for december = $75*1/3= $ 25

Hence answer is (D) =$ 25

Question 11:

Here, the company has an obligation because of a past event.

For IAS 37, there should be a present obligation because of past events and the outcome should be reliably measured in order to create a provision.

Here, the company has obligation because of past event, i.e., ankle fracture and medical expenses.

But the company does not have any present obligation.

The company is reasonably possible that liability may be incurred.

Also, the amount is not reliably measured.

Hence, it should be disclosed as Contingent liability in the notes.

Answer:

(b) As a contingent liability disclosed in the notes.

Why not (a) ,(c) ?

It is not a known liability and also, to estimate, it is not a present obligation and it is only reasonably possible but not more likely than not.

Hence answer is (b) contingent liability.

Hope it helps,

Thank you.

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