Reference no: EM132607547
Question - The following situations relate to Washburn Company.
1. WST 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 sh.100, 000,000. It also estimates that 60% of the product will have no defects, 30% will have major defects, and 10% will have minor defects. The cost of a minor defect is estimated to be sh.5 for each product repaired, and the cost for a major defect cost is sh.15. The company also estimates that the minimum amount of warranty expense will be sh.2, 500,000 and the maximum will be sh.12, 000,000.
2. WST is involved in a tax dispute with the tax authorities. The most likely outcome of this dispute is that WST will lose and have to pay sh.500, 000. The minimum it will lose is sh.25, 000 and the maximum is sh.3, 000,000.
3. WST 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 can range from 5% of sales to 9% of sales, with any amount in between a reasonable possibility. In 2019, WST has sh.50, 000,000 of sales subject to possible refund.
Required - Prepare the journal entry to record provisions, if any, for WST at December 31, 2019?
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