Determine the effective interest rate.

Washburn provides a warranty with all its products it sells. It estimates that it will sell 1,200,000 units of its product for the year ended December 31, 2010, and that its total revenue for the product will be P100,000,000. It also estimates that 60% of the product will have no defects, 30% will have major defects, and 10% will have minor defects. The cost of a minor defect is estimated to be P5 for each product sold, and the cost for a major defect cost is P15. The company also estimates that the minimum amount of warranty expense will be P2,500,000 and the maximum will be P12,000,000.

2. Washburn is involved in a tax dispute with the tax authorities. The most likely outcome of this dispute is that Washburn will lose and have to pay P500,000. The minimum it will lose is P25,000 and the maximum is P3,000,000.

  • Prepare the journal entry to record provisions, if any, for Washburn at December 31, 2010.

IX. On November 1, 2011, a P216,000, 9-month, noninterest-bearing note is issued at a 10% discount rate.

(1) Prepare the appropriate journal entry to record the issuance of the note.

(2) Determine the effective interest rate.
(3) Prepare the appropriate journal entry on December 31, 2011, to record interest on the note for the 2011 financial statements.
(4) Prepare the appropriate journal entry(s) on July 31, 2012, to record interest and the payment of the note

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