Problem 1 Provisions and Contingent Liabilities The following situations relate to Washburn Company. 1. Washburn provides a warranty with all its products it sells. It estimates that it will sell 1,200,000 units of its product for the year ended December 31, 2019, and that its total revenue for the product will be 100,000,000. It also estimates that 60% of the product will have no defects, 40% will have defects. The cost of a defect is estimated to be $10 for each product repaired. t 2. Washburn is involved in a tax dispute with the tax authorities. The most likely outcome of this dispute is that Washburn will lose and have to pay 500,000. The minimum it will lose is 25,000 and the maximum is 3,000,000.- t 3. In August, 2019 a worker was injured in the factory in an accident partially the result of his own negligence. The worker has sued Washburn Co. for 800,000. Counsel believes it is possible but not probable that the outcome of the suit will be unfavorable and that the settlement would cost the company 250,000.- 4. Washburn has a policy of refunding purchases to dissatisfied customers, even though it is under no obligation to do so. However, it has created a valid expectation with its customers to continue this practice. These refunds is estimated to be 5% of sales. In 2019, Washburn has 50,000,000 of sales subject to possible refund. t + Instructions 1. Classify whether the transactions above is PROVISIONS or CONTINGENT LIABILITES.- 2. Please indicate the accounting procedure whether the transactions above need to + 1. Adjust and Disclose or 2. Disclose or 3. Neither adjust nor disclose- 3. If the above requirements need to adjust and disclose, prepare the journal entry to adjust the transactions with workings for Washburn at December 31, 2019. t (Note: Please write the following heading in the table of your worksheet.) (1) (2)- Transaction- Provision / Contingent Liabilities Adjust and Disclose or Disclose or Neither Adjust nor Disclose- 1. t t 2 2.+ 3.+ t 4