Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Palmer

Frosted Flakes boxes and P1.00. The company estimates that 60% of the boxtops will be redeemed. In 2021, the

company sold 675,000 boxes of Frosted Flakes and customers redeemed 330,000 boxtops receiving 110,000

bowls. The bowls cost Palmer Company P2.50 each.

1. How much liability for outstanding premiums should be recorded at the end of 2021?

In 2020, Baylor Corporation began selling a new line of products that carry a two-year warranty against defects.

Based upon past experience with other products, the estimated warranty costs related to dollar sales are as

follows:

First year of warranty 2%

Second year of warranty 5%

Sales and actual warranty expenditures for 2020 and 2021 are presented below:

2020 2021

Sales P300,000 P400,000

Actual warranty expenditures 10,000 20,000

2. What is the estimated warranty liability at the end of 2021?

Echo Company sells office equipment contracts agreeing to service equipment for a two-year period. Cash

receipts from contracts are credited to unearned service contract revenue and service contract costs are charged

to service contract expense as incurred. Revenue from service contract is recognized as earned over the lives of

the contracts.

Additional information for the year ended December 31, 2019 is as follows:

Unearned service contract revenue, January 1, 2019 P600,000

Cash receipts from service contracts sold 980,000

Service contract revenue recognized 860,000

Service contract expense 520,000

3. What amount should Echo report as unearned service contract revenue at December 31, 2019?

Eye Company sells DVDs for P 6,300 each and offers to each customer a three-year service contract for an

additional P600. The company sold 300 and 250 service contracts for cash in 2017 and 2018, respectively.

Expenses relating to the service contracts for 2017 amounted to P 5,250 while for 2018, expenses amount to

P6,000. Past records of the company indicate that the pattern of repairs has been 20% in the year of sale, 30%

in the second year, and 50% in the third year. Sales of the contracts are made evenly during the year.

4. How much is the unearned service contract revenue at December 31, 2019?