Refer to the facts presented in the previous problem (P4-10).

Data from P4-10

A car manufacturer provides a service-type warranty for fi ve years on sales of new vehicles. The following table provides information relating to two car models the company produces and sells:

Required:Using the residual method, compute the revenue that would be (i) recognized upon delivery of the vehicle and (ii) deferred and recognized over five years for each of the car models. For the computations:a. Assume that the selling price of the warranty has not been established.b. Assume that the selling price of the car alone is highly variable.

Transcribed Image Text:

Car model Sale price Estimated price of car Estimated price of warranty Nova $15,000 $14,000 $1,500 Pinto 18,000 15,000 2,000