Reference no: EM133102218

Question 1 - During 2020, Polly started manufacturing and selling a new product with a three-year warranty. Polly prepares annual AJEs once each year as of 12-31. Based upon past experience with similar products, Polly estimated the following warranty costs as a % of sales dollars:

First year of warranty 2%

Second year of warranty 3%

Third year of warranty 6%

Polly's sales during 2020 and 2021, respectively, were $346,000 and $482,000. Polly's actual warranty expenditures for 2020 and 2021, respectively, were $2,800 and $12,300.

Required -

1. What was Polly's estimated warranty expense amount for 2021?

2. What was Polly's estimated warranty liability amount as of 12-31-21?

Question 2 - On 01-01-20, Forest bought a fixed asset for $10,000,000. Forest immediately started using the fixed asset. The life of the fixed asset is 10 years and the expected cost to dismantle the fixed asset at the end of 10 years is $1,450,000. An interest rate of 2.5% would be appropriate for Forest for any necessary present value calculations.

Required -

1. What amount will Forest record as accretion expense for 2023?

2. Forest uses a straight-line depreciation method and assumes no salvage value. What amount will Forest record as depreciation expense each year?