q21

4 pts CycleShop sells bicycles and offers a manufacturer two-year warranty on all bike's sold, beginning the month after sale. They begin 2013 with $55,000 in their "Warranty Payable" account. Throughout 2013 CycleShop sells $2,000,000 worth of bikes, and incur warranty related repair costs equal to $20,000. At the end of December 2013 they estimate the following warranty related repairs for the next 2 years, based on the bike's they have sold in 2013: 2014 Estimated Loss Probability $40,000 40% $30,000 60% 2015 Estimated Loss Probability $20,000 40% $10,000 60% Assume that CycleShop (1) uses a 5% discount factor to compute present values, (2) that all repairs are assumed to occur at the end of the year, and (3) they use the expected cash flows approach to determine their current period warranty expense, how much warranty expense should CycleShop record in 2013? 4 pts CycleShop sells bicycles and offers a manufacturer two-year warranty on all bike's sold, beginning the month after sale. They begin 2013 with $55,000 in their "Warranty Payable" account. Throughout 2013 CycleShop sells $2,000,000 worth of bikes, and incur warranty related repair costs equal to $20,000. At the end of December 2013 they estimate the following warranty related repairs for the next 2 years, based on the bike's they have sold in 2013: 2014 Estimated Loss Probability $40,000 40% $30,000 60% 2015 Estimated Loss Probability $20,000 40% $10,000 60% Assume that CycleShop (1) uses a 5% discount factor to compute present values, (2) that all repairs are assumed to occur at the end of the year, and (3) they use the expected cash flows approach to determine their current period warranty expense, how much warranty expense should CycleShop record in 2013