19: A.2. Warranties

Question 1

A company is subject to assurance-type warranty claims. It is estimated that between $1,000,000 and $3,000,000 will probably be paid out. No estimate of loss within this range is a better estimate than any other amount. The company should:

A. Make no journal entry at this time.
B. Disclose only a possible loss.
C. Accrue a loss of $1,000,000.correct
D. Defer a loss of $1,000,000 to $3,000,000.

Answer 1

Correct answer C
According to standards, IFRS and GAAP, when we have a range between two numbers, and there is no specific number that is better that the others, we have to choice the minimum, on the other hand if we have number that is the best estimation number of all of them then we have to chose it