The Heinrich Tire Company recalled a tire in its subcompact line in December 2021. Costs associated with the recallwere originally thought to approximate $45 million. Now, though, while management feels it is probable the companywill incur substantial costs, all discussions indicate that $45 million is an excessive amount. Based on prior recalls inthe industry, management has provided the following probability distribution for the potential loss: (FV of $1. PV of $1.EVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)Loss Amount$35 million$25 million$15 millionProbability20%50%30%An arrangement with a consortium of distributors requires that all recall costs be settled at the end of 2022. The risk-free rate of interest is 4%.Required:1. & 2. By the traditional approach to measuring loss contingencies, what amount would Heinrich record at the end of2021 for the loss and contingent liability? For the remainder of this problem, apply the expected cash flow approachof SFAC No. 7. Estimate Heinrich's liability at the end of the 2021 fiscal year.3. to 5. Prepare the necessary journal entries.

A Liability that may or may not occur in the near future depends on the result of a specific event…

Required: 1. & 2. By the traditional approach to measuring loss contingencies, what amount would Heinrich record at the end of 2021 for the loss and contingent liability? For the remainder of this problem, apply the expected cash flow approach of SFAC No. 7. Estimate Heinrich's liability at the end of the 2021 fiscal year. 3. to 5. Prepare the necessary journal entries,

Required: 1. & 2. By the traditional approach to measuring loss contingencies, what amount would Heinrich record at the end of 2021 for the loss and contingent liability? For the remainder of this problem, apply the expected cash flow approach of SFAC No. 7. Estimate Heinrich's liability at the end of the 2021 fiscal year. 3. to 5. Prepare the necessary journal entries,

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The Heinrich Tire Company recalled a tire in its subcompact line in December 2018. Costs associated with therecall were originally thought to approximate $50 million. Now, though, while management feels it is probable thecompany will incur substantial costs, all discussions indicate that $50 million is an excessive amount. Based onprior recalls in the industry, management has provided the following probability distribution for the potential loss:Loss Amount Probability$40 million 20%$30 million 50%$20 million 30%An arrangement with a consortium of distributors requires that all recall costs be settled at the end of 2019. Therisk-free rate of interest is 5%.Required:1. By the traditional approach to measuring loss contingencies, what amount would Heinrich record at the endof 2018 for the loss and contingent liability?2. For the remainder of this problem, apply the expected cash flow approach of SFAC No. 7. Estimate Heinrich’sliability at the end of the 2018 fiscal year.3. Prepare the…
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[The following information applies to the questions displayed below.] Astro Co. sold 19,200 units of its only product and incurred a $43,072 loss (ignoring taxes) for the current year, as shown here. During a planning session for year 2020's activities, the production manager notes that variable costs can be reduced 50% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $142,000. The maximum output capacity of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2019 $704,640 563,712 Sales Variable costs Contribution margin Fixed costs 140,928 184,000 Net loss $ (43,072) Required: . Compute the break-even point in dollar sales for 2019. (Round your answers to 2 decimal places.) Contribution Margin Per Unit Current Year $ 0.00 Contribution Margin Ratio Choose Numerator: Choose Denominator: Contribution Margin Ratio Contribution margin ratio…
Required information [The following information applies to the questions displayed below.] Astro Co. sold 19,200 units of its only product and incurred a $43,072 loss (ignoring taxes) for the current year, as shown here. During a planning session for year 2020's activities, the production manager notes that variable costs can be reduced 50% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $142,000. The maximum output capacity of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2019 $704,640 563,712 140,928 Sales Variable costs Contribution margin Fixed costs 184,000 Net loss $(43,072) 3. Prepare a forecasted contribution margin income statement for 2020 that shows the expected results with the machine installed. Assume that the unit selling price and the number of units sold will not change, and no income taxes will be due. (Do not…
[The following information applies to the questions displayed below.] Astro Co. sold 19,200 units of its only product and incurred a $43,072 loss (ignoring taxes) for the current year, as shown here. During a planning session for year 2020's activities, the production manager notes that variable costs can be reduced 50% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $142,000. The maximum output capacity of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2019 $704,640 563,712 Sales Variable costs Contribution margin Fixed costs 140,928 184,000 Net loss $(43,072) Compute the sales level required in both dollars and units to earn $120,000 of target pretax income in 2020 with the machine stalled and no change in unit sales price. (Do not round intermediate calculations. Round your answers to 2 decimal places. pund "Contribution margin…