Question # 4A company offers good for sale with a 6-month warranty, where good sold that are foundto be faulty within 6 months after purchase may be returned for a full refund. Not allgoods will be faulty and similarly, not all customers bother to return faulty goods. Thecompany’s past experience suggests that the following are the possible outcomes and theprobability thereof.Outcomes Probability Estimated costGoods will not be returned 70% 0Goods will be returned 30% 100 000Required: Calculate the expected cost of the provision and journalize it

The expected cost of the provision can be calculated by multiplying each outcome's cost by its probability, and then summing these results.

For goods that will not be returned: Probability = 70% or 0.70 Cost = 0 So, Expected cost = 0.70 * 0 = 0

For goods that will be returned: Probability = 30% or 0.30 Cost = 100,000 So, Expected cost = 0.30 * 100,000 = 30,000

Adding these together, the total expected cost of the provision is 0 + 30,000 = 30,000.

The journal entry to record this provision would be:

Debit: Warranty Expense 30,000 Credit: Warranty Liability 30,000

This entry recognizes the expense associated with the expected warranty claims, and sets up a liability for the expected future payouts.