Company's Financial Disclosure x :mail From the Controller Company's Financial Disclosure Allowances for Warranties. Our products are covered by standard warranty plans included in the price of the products ranging from one to two years, depending on the product. The majority of the warranty periods are for one year. The Company accrues for the estimated cost of warranties at the time the related revenue is recognized and is based on historical and projected warranty claim rates and historical and projected cost-per-claim experience. The Company reviews these estimates regularly to assess the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. We believe that the accounting estimate related to allowances for warranties is a significant accounting estimate because it is susceptible to significant fluctuation period-to-period, due to the requirement for management to make assumptions about future warranty claims relative to potential unknown issues arising in both existing and new products. Management's assumptions are derived from historical trends of known or resolved issues. If our actual product failure rates or repair costs differ from estimates, revisions to the estimated warranty liabilities would be required and could materially affect the Company's -mail From the Controller rom: controller@mingle.com p: auditmanager@merrell.com c: auditsenior@merrell.com ate: January 11 , year 5 ubject: Re: Developing Accounting Estimates-Allowances for Warranties ccounting Manager, s requested, an overview of our developed approach on estimating allowance for warranties is outlined below. eneral policy: The entire liability for the warranty is accrued in the year of sale. That means the accrual will take ace in the year of sale even if part of the warranty expense will be incurred in a later year. ingle has three main products: Mingle Mixer (blender), Mingle Slice and Dice (primarily used for fruits and pgetables), and Mingle Depositor (primarily used for pastry filling). Each product comes with a different warranty gainst product defects. The warranty period, along with our estimated warranty cost, are listed below. financial condition and operating results. A reconciliation of the changes in the Company's allowances for warranties is as follows (in thousands): Hist. \& Projected Warranty Rates eel free to come by my office to discuss further. heers, lontroller Historical and Projected Warranty Rates Scroll down to complete all parts of this task. Merrell, CPA, is performing audit procedures for the December 31, Year 5, audit of Mingle Co., a nonissuer in the food processing industry. This is Mingle Co.'s first year under audit. Mingle Co. is a company that sells high-performance professional and home food-processing equipment. The company focuses on producing kitchen solutions with a timeless design with the most up-to-date technology. Mingle is known by most consumers for its blender, the Mingle Mixer. The company also produces the Mingle Slice and Dice and the Mingle Depositor. The audit materiality has been set at $500,000. The auditor needs to evaluate the reasonableness of Allowances for Warranties, one of Mingle Co.'s significant accounting estimates. The auditor has gathered relevant information to the Allowances for Warranties account, including the following: - The company's financial disclosure on Allowances for Warranties for Year 5. - E-mail from the controller regarding developing accounting estimates. - Historical and projected warranty rates. Complete the evaluation summary on the allowance for warranties of Mingle's three main products by using the information provided in the exhibits: - In column B, quantify the material adjustment, if any, to the Allowances for Warranties account. - Enter increases to the Allowances for Warranties as positive whole dollars. - Enter decreases to the Allowances for Warranties as negative whole dollars. - If no adjustment to the Allowances for Warranties is required, enter a zero ("0"). - In column C, select the justification for the required audit adjustment, or the reason why no audit adjustment is required, by clicking in the associated cells and selecting from the list provided. A justification may be used once, more than once, or not at all. - Assume that there is only one justification for each allowance adjustment. Based on the work performed above, form a conclusion on the reasonableness of the Allowances for Warranties balance. Select an option below Projected claim rates are not supported by historical claim rates. Calculations do not follow the company's accounting policy. Calculations have mathematical errors. Accounting policy does not follow GAAP. N/A-Adjustments are not needed. Select an option below The Allowances for Warranties balance is deemed reasonable. No further audit procedures necessary. The Allowances for Warranties balance is deemed reasonable, but a prior period restatement is required on prior year financial statements. The Allowances for Warranties balance is misstated, but the misstatement is not material. Auditor recommends adjustment. The Allowances for Warranties balance is misstated, but the misstatement is not material. Auditor recommends disclosure in the financial statements. The Allowances for Warranties balance is materially misstated and requires adjustment. Company's Financial Disclosure x :mail From the Controller Company's Financial Disclosure Allowances for Warranties. Our products are covered by standard warranty plans included in the price of the products ranging from one to two years, depending on the product. The majority of the warranty periods are for one year. The Company accrues for the estimated cost of warranties at the time the related revenue is recognized and is based on historical and projected warranty claim rates and historical and projected cost-per-claim experience. The Company reviews these estimates regularly to assess the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. We believe that the accounting estimate related to allowances for warranties is a significant accounting estimate because it is susceptible to significant fluctuation period-to-period, due to the requirement for management to make assumptions about future warranty claims relative to potential unknown issues arising in both existing and new products. Management's assumptions are derived from historical trends of known or resolved issues. If our actual product failure rates or repair costs differ from estimates, revisions to the estimated warranty liabilities would be required and could materially affect the Company's -mail From the Controller rom: controller@mingle.com p: auditmanager@merrell.com c: auditsenior@merrell.com ate: January 11 , year 5 ubject: Re: Developing Accounting Estimates-Allowances for Warranties ccounting Manager, s requested, an overview of our developed approach on estimating allowance for warranties is outlined below. eneral policy: The entire liability for the warranty is accrued in the year of sale. That means the accrual will take ace in the year of sale even if part of the warranty expense will be incurred in a later year. ingle has three main products: Mingle Mixer (blender), Mingle Slice and Dice (primarily used for fruits and pgetables), and Mingle Depositor (primarily used for pastry filling). Each product comes with a different warranty gainst product defects. The warranty period, along with our estimated warranty cost, are listed below. financial condition and operating results. A reconciliation of the changes in the Company's allowances for warranties is as follows (in thousands): Hist. \& Projected Warranty Rates eel free to come by my office to discuss further. heers, lontroller Historical and Projected Warranty Rates Scroll down to complete all parts of this task. Merrell, CPA, is performing audit procedures for the December 31, Year 5, audit of Mingle Co., a nonissuer in the food processing industry. This is Mingle Co.'s first year under audit. Mingle Co. is a company that sells high-performance professional and home food-processing equipment. The company focuses on producing kitchen solutions with a timeless design with the most up-to-date technology. Mingle is known by most consumers for its blender, the Mingle Mixer. The company also produces the Mingle Slice and Dice and the Mingle Depositor. The audit materiality has been set at $500,000. The auditor needs to evaluate the reasonableness of Allowances for Warranties, one of Mingle Co.'s significant accounting estimates. The auditor has gathered relevant information to the Allowances for Warranties account, including the following: - The company's financial disclosure on Allowances for Warranties for Year 5. - E-mail from the controller regarding developing accounting estimates. - Historical and projected warranty rates. Complete the evaluation summary on the allowance for warranties of Mingle's three main products by using the information provided in the exhibits: - In column B, quantify the material adjustment, if any, to the Allowances for Warranties account. - Enter increases to the Allowances for Warranties as positive whole dollars. - Enter decreases to the Allowances for Warranties as negative whole dollars. - If no adjustment to the Allowances for Warranties is required, enter a zero ("0"). - In column C, select the justification for the required audit adjustment, or the reason why no audit adjustment is required, by clicking in the associated cells and selecting from the list provided. A justification may be used once, more than once, or not at all. - Assume that there is only one justification for each allowance adjustment. Based on the work performed above, form a conclusion on the reasonableness of the Allowances for Warranties balance. Select an option below Projected claim rates are not supported by historical claim rates. Calculations do not follow the company's accounting policy. Calculations have mathematical errors. Accounting policy does not follow GAAP. N/A-Adjustments are not needed. Select an option below The Allowances for Warranties balance is deemed reasonable. No further audit procedures necessary. The Allowances for Warranties balance is deemed reasonable, but a prior period restatement is required on prior year financial statements. The Allowances for Warranties balance is misstated, but the misstatement is not material. Auditor recommends adjustment. The Allowances for Warranties balance is misstated, but the misstatement is not material. Auditor recommends disclosure in the financial statements. The Allowances for Warranties balance is materially misstated and requires adjustment