comm 450 assignment 1
COMMERCE 450 ASSIGNMENT 1
FALL 2013 DUE: September 25
All questions should be answered to the nearest full dollar except that earnings per share questions are to be answered to the nearest cent. You should assume, unless it is stated otherwise, that all companies are Canadian public companies which must comply with the International Financial Reporting Standards and that all companies have December 31 year-ends.
Question 1 (16 marks)
a) Manaus Manufacturing provides warranties with the products that it sells. At December 31, 2012, the company’s warranty provision amounted to $420,000. During the 2013, sales of products to which warranties were provided amounted to $12 million. The company estimated that warranty costs would amount to 3% of the sales amount. During the year, the company spent $510,000 on warranty costs.
Required:
i) What amount should be recorded as warranty expense for 2013 by the company? ii) What warranty provision should be included in the company’s statement of financial position as at December 31, 2013?
b) Kleinberg Corporation was sued by a customer for product liability. The customer sought damages of $1,500,000. At the its December 31, 2012, year-end, the company obtained an opinion from their lawyers that the customer had a 75% likelihood of winning the suit with the damages likely to be assessed in the range of $800,000 to $1,200,000. Legal costs were estimated to amount to a further $150,000. In late January, before the company’s financial statements had been finalized, the company settled the claim with the customer for $800,000. The lawyers estimated their fees to be reduced to $80,000 because the matter was settled without going to court.
Required:
What provision(s) should Kleinberg Corporation make for this matter in its statement of financial position as at December 31, 2012?
c) Chihuahua Chemicals has, for the last decade, self-insured against injury and casualty losses
FALL 2013 DUE: September 25
All questions should be answered to the nearest full dollar except that earnings per share questions are to be answered to the nearest cent. You should assume, unless it is stated otherwise, that all companies are Canadian public companies which must comply with the International Financial Reporting Standards and that all companies have December 31 year-ends.
Question 1 (16 marks)
a) Manaus Manufacturing provides warranties with the products that it sells. At December 31, 2012, the company’s warranty provision amounted to $420,000. During the 2013, sales of products to which warranties were provided amounted to $12 million. The company estimated that warranty costs would amount to 3% of the sales amount. During the year, the company spent $510,000 on warranty costs.
Required:
i) What amount should be recorded as warranty expense for 2013 by the company? ii) What warranty provision should be included in the company’s statement of financial position as at December 31, 2013?
b) Kleinberg Corporation was sued by a customer for product liability. The customer sought damages of $1,500,000. At the its December 31, 2012, year-end, the company obtained an opinion from their lawyers that the customer had a 75% likelihood of winning the suit with the damages likely to be assessed in the range of $800,000 to $1,200,000. Legal costs were estimated to amount to a further $150,000. In late January, before the company’s financial statements had been finalized, the company settled the claim with the customer for $800,000. The lawyers estimated their fees to be reduced to $80,000 because the matter was settled without going to court.
Required:
What provision(s) should Kleinberg Corporation make for this matter in its statement of financial position as at December 31, 2012?
c) Chihuahua Chemicals has, for the last decade, self-insured against injury and casualty losses