Diego Quante Case Study

Diego Quante

D02967708

Week 5 Case Study

1. 1. Disclosure Note Only

2. Disclosure Note Only

3. Accrue 2006 warranty liability & disclosure note

4. Disclosure Note Only

2. 1. Subsequent events are creating material losses but the monetary value is not estimable. So, disclosure note is needed.

Adjustments & Contingencies (in part)

The company is attempting to settle labor disputes at three plants. On March 1, 2007, the labor union began facilitating ongoing strikes at the sites. The amount of loss due t o these events will have a material effect but is not reasonably estimable.

2. Gain contingencies are not journalized until they’re realized. A disclosure not that is not misleading is appropriate.

Adjustments & Contingencies (in part)

On February 4, 2007, AJ Conner Company was ordered through bankruptcy court to pay 23 million upon consummation of a planned merger with Garner Holding Group. The gain will not be recognized unless and until payment occurs.

3. The estimated warranty liability is probable and the dollar amount is estimable. So, journal entries and disclosures are needed. As customers make claims, the costs incurred to satisfy them will reduce the liability.

2006 Journal Entries:

Estimated Warranty Liability………$39 million

Warranty Expense…………………..$1 million

Cash, wages payable, parts & supplies, etc…………$40 million

Warranty Expenditures

Warranty Expenses………………….$42 million

Estimated Warrant Liability………………………….$42 million

Warranty contingencies for 2006 sales.

Adjustments & Contingencies (in part)

We accrue the costs of warranties when our obligation is probable and such costs can be reasonably estimated. Experience dictates that 2% of sales will equal warranty costs. As of December 31, 2006 and 2005, we had a liability of 42 million and 39 million respectively. 40 million in warranty claims were journalized for customers during 2006....