Fusion, Inc $$\begin{array} { c c } { \text { Actual warranty } } \\\text { Sales } & \text { Expenditures } \\\$ 15 \text { million } & \$ 200,000\end{array}$$

question 65

Essay

Fusion, Inc. introduced a new line of circuits in 2009 that carry a four-year warranty against manufacturer's defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 3% of sales. Sales and actual warranty expenditures for the first year of selling the product were:
Required:
1. Does this situation represent a loss contingency? Why or why not? How should it be accounted for?
2. Prepare journal entries that summarize sales of the circuits (assume all credit sales) and any aspects of the warranty that should be recorded during 2009.
3. What amount should Fusion report as a liability at December 31, 2009?
$$\begin{array} { c c } { \text { Actual warranty } } \\\text { Sales } & \text { Expenditures } \\\$ 15 \text { million } & \$ 200,000\end{array}$$

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Definitions:

Trial Close

A sales technique wherein the salesperson asks the prospect a question that assumes the sale has been made, in order to gauge the buyer’s readiness to purchase.

Self-Preservation

The natural or instinctual drive to protect oneself from harm, maintain wellbeing, and secure personal interests.

Psychological Needs

Fundamental emotional or mental requirements that, when satisfied, motivate behavior to meet them, such as love, esteem, and belonging.

Personal Pleasure

A sense of satisfaction or enjoyment derived from personal activities or interests.