What is the net income or (loss) recognized in 20x1 from the sale of Jeeps, considering the standard and extended warranties?
The net income recognized in 20x1 from the sale of Jeeps, considering the standard and extended warranties, is $165,000.
Calculating Net Income Recognized in 20x1
1. Revenue from Jeep sales: The total sales price for the Jeeps is $500,000.
2. Cost of Goods Sold (COGS): The COGS for the Jeeps is $350,000.
3. Revenue from extended warranties: The extended warranty sales price is $31,000.
4. Estimated warranty costs: The estimated costs for the standard warranty in 20x1 and 20x2 are $5,000. The estimated costs for the extended warranty in 20x3 and 20x4 are $20,000.
5. Actual warranty costs incurred: The warranty cost in 20x1 is $3,000, and the warranty cost in 20x2 is also $3,000. These costs are related to the standard warranty.
6. Net income calculation:
- Total revenues: $500,000 (Jeep sales) + $31,000 (extended warranty sales) = $531,000
- Total expenses: $350,000 (COGS) + $5,000 (standard warranty estimate) + $20,000 (extended warranty estimate) + $3,000 (actual warranty cost in 20x1) + $3,000 (actual warranty cost in 20x2) = $381,000
Net income = Total revenues - Total expenses = $531,000 - $381,000 = $150,000
However, we need to consider the revenue recognition for the extended warranty. Since the extended warranty covers 20x3 and 20x4, the revenue should be recognized over the respective periods.
7. Net income recognized in 20x1:
- Revenue recognized in 20x1: $31,000 (extended warranty sales price) * 2/4 (portion applicable to 20x1) = $15,500
Net income recognized in 20x1 = Net income (before extended warranty revenue recognition) + Revenue recognized in 20x1
Net income recognized in 20x1 = $150,000 + $15,500 = $165,500
Therefore, the net income recognized in 20x1 from this sale is $165,500.