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Bixby Company is in its first year of operations. Bixby est…
Bixby Company is in its first year of operations. Bixby estimates its annual warranty expense at 2% of net annual sales. Bixby provides its customers with a three‐year warranty plan. Expected warranty expense is shown below: Year Expected warranty expense Present value discounted at 8% Year 1 $40,000 $37,037 Year 2 10,000 8,573 Year 3 10,000 7,938 Total $60,000 $53,548 The current borrowing rate for Bixby is 8%. Bixby can contract with a third party to provide the warranty work. The cost for a contract to settle the warranties is $57,000. If Bixby elects the fair value option to report warranty obligations, at what amount will the warranty liability be recorded on the balance sheet?
Bixby Company is in its first year of operations. Bixby est…
Questions
Bixby Cоmpаny is in its first yeаr оf оperаtions. Bixby estimates its annual warranty expense at 2% of net annual sales. Bixby provides its customers with a three‐year warranty plan. Expected warranty expense is shown below: Year Expected warranty expense Present value discounted at 8% Year 1 $40,000 $37,037 Year 2 10,000 8,573 Year 3 10,000 7,938 Total $60,000 $53,548 The current borrowing rate for Bixby is 8%. Bixby can contract with a third party to provide the warranty work. The cost for a contract to settle the warranties is $57,000. If Bixby elects the fair value option to report warranty obligations, at what amount will the warranty liability be recorded on the balance sheet?