Pleasant Co. Essay

beautiful Co. manufactures specialty pedal accessories. The fraternity is known for product quality, and it has offered one of the best warranties in the constancy on its higher-priced productsa lifetime guarantee, performing all the stock warrant reverse in its own shops. The warranty on these products is included in the gross revenue price. Due to the recent introduction and growth in sales of nigh products targeted to the low price market, Pleasant is considering partnering with another company to do the warranty work on this line of products, if customers purchase a service prune at the time of headmaster product purchase. Pleasant has called you to advise the company on the accounting for this new warranty arrangement. InstructionsIf your school has a subscription to the FASB Codification, go to log in and prep be responses to the following. Provide Codification references for your responses. (a) report the accounting literature that addresses the accounting for the ty pe of separately priced warranty that Pleasant is considering. (b) When are warranty hales considered separately priced? (c) What are incremental direct erudition costs and how should they be treated?SOLUTION(a)FASB ASC 605-20-25 addresses how revenue and costs from a separately priced extended warranty or product criminal maintenance contract should be recognized.(b)An Extended Warranty is an treaty to provide warranty resistance in addition to the scope of coverage of the manufacturers original warranty, if any, or to extend the period of coverage provided by the manufacturers original warranty. Product Maintenance Contracts are agreements to perform certain agreed-upon function to maintain a product for a condition period of time. The call of the contract may take different forms, such(prenominal) as an agreement to periodically perform a particular service a specified number of times over a specified period of time, or an agreement to perform a particular service as the pauperisation arises over the term of the contract.Separately Priced Contracts are agreements under which the customer has the alternative to purchase an extended warranty or a product maintenance contract for an expressly stated amount separate from the price of the product. FASB ASC 605-20-20-20 (Glossary)(c)Costs that are directly related to the acquisition of a contract and that would have not been incurred but for the acquisition of that contract (incremental direct acquisition costs) shall be deferred and supercharged to expense in proportion to the revenue recognized. All other costs, such as costs of services performed under the contract, general and administrative expenses, advertize expenses, and costs associated with the negotiation of a contract that is not consummated, shall be charged to expense as incurred. FASB ASC 605-20-25-4