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:

Negative Consequences

Unfavorable, harmful, or detrimental outcomes resulting from an action or decision.

Slave Trade

The historical trade of enslaved people, primarily from Africa to the Americas, conducted from the 16th to the 19th centuries, which had profound economic, social, and demographic impacts.

Treaty of Tordesillas

An agreement between Portugal and Spain, concluded in 1494, that divided the newly discovered lands outside Europe between them along a meridian 370 leagues west of the Cape Verde islands.

Portuguese

Related to Portugal, its people, culture, or language, which is spoken primarily in Portugal and Brazil among other countries.