How much operating income would be reported by extravagant

Reference no: EM133659651

Question: Extravagant Company, which uses IFRS, sells home appliances. On January 1, 2024, it sells a fridge to a customer for $5,300 cash and, as part of a promotion, Extravagant gives the customer a free 15- month extended warranty (service-type warranty). The fridge also has a 9-month assurance-type warranty, which is estimated to cost Extravagant 4% of sales revenue. Assume that the 15-month extended warranty begins after the 9-month assurance-type warranty has expired, so the customer effectively receives 24 months of warranty coverage. Additional information follows:

(a) The fridge, if sold by itself, would normally sell for $5,100. The cost of the fridge to Extravagant, based on a first-in first-out (FIFO) perpetual inventory system, is $1,900.

(b) The extended warranty, if sold by itself, would normally sell for $1,275.

Required:

(A) Prepare the journal entry/entries that should be recorded on January 1, 2024.

(B) How much Operating Income would be reported by Extravagant for the year-ended December 31, 2024? Show your calculations.

Reference no: EM133659651

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