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What is the balance of the estimated premium claims

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Question - Entertainment 720, Inc. is a premiere, high-end, all-media entertainment conglomerate. As part of its media and television arm, Entertainment 720 delivers a one-of-a-kind entertainment experience through its interdimensional cable boxes, interdimensional goggles, IQ enhancing helmets and Roy VR Headsets. To promote the sale of its products, Entertainment 720 uses two promotion techniques - premiums and warranties.

Premiums - The premium is offered on the interdimensional cable boxes and interdimensional goggles. Customers receive a coupon for each peso spent on interdimensional cable box and interdimensional goggles. Customers may exchange 200 coupons and P20 for a butter robot (Why reach for the butter yourself?). Entertainment 720 pays P32 for each butter robot and estimates that 60% of the coupons given to customers will be redeemed. A total of 6,500 butter robots used in the premium program were purchased during the year and there were 1,200,000 coupons redeemed in 2020.

Warranties - IQ enhancing helmets and Roy VR headsets are sold with a one-year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 2% of sales. Replacement parts and labor for warranty work totaled P94,000 during 2020.

Entertainment 720 uses the accrual method to account for the warranty and premium costs for financial reporting purposes. Entertainment 720's sales for 2020 totaled P7,200,000 - P5,700,000 from IQ enhancing helmets and Roy VR headsets and P1,500,000 from interdimensional cable boxes and interdimensional goggles.

The balances in the accounts related to warranties and premiums on January 1, 2020, were as shown below:

Inventory of premium butter robots P 37,600

Estimated premium claims outstanding 44,800

Estimated liability from warranties 136,000

Required - Based on the information above, answer the following:

1. How much is the warranty expense for the year ended December 31, 2020?

2. What is the balance of the estimated liability from warranties as of December 31, 2020?

3. How much is the premiums expense for the year ended December 31, 2020?

4. What is the balance of the inventory of premium butter robots as of December 31, 2020?

5. What is the balance of the estimated premium claims outstanding as of December 31, 2020?

Reference no: EM132772149

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