CHAPTER 6

DISCUSSION QUESTIONS
1. The three types of business activities are operating activities, investing activities, and financing activities. 2. The purchase of inventory for resale to customers is classified as an operating activity rather than an investing activity because operating activities are associated with the primary purpose of a business. Purchasing inventory for resale is essential to selling a product. Investing activities are related to purchasing assets for use in the business. 3. Revenues should be recognized and reported when (1) the work has been substantially completed and (2) cash, or a valid promise of future payment, has been received. For example, revenues generally should not be reported until a sale has been made or a service has been performed. 4. Some of the reasons revenues are misstated to manipulate financial statements are: a. It is quite easy. All one has to do to overstate revenues is record fictitious sales, record sales earlier than they should be recorded, or overstate the amount of legitimate sales. b. When revenues are overstated, assets (accounts receivables) are also overstated. By overstating revenues and assets, financial statements look good. c. Determining when to recognize revenues is not always easy and requires professional judgment. 5. It is important to have separate sales returns and allowances and sales discounts accounts rather than to reduce Sales Revenue directly because a knowledge of the original amount of sales (undisturbed by adjustments for returns and discounts) is valuable when assessing what percentage of sales is returned and/or what the net revenue from sales is. For example, if a company found that a significant percentage of sales was being returned (as calculated by dividing sales returns and allowances by sales), it might decide that it is selling inferior merchandise or has a return policy that is too liberal. 6. Companies need more controls over cash than other assets because cash is the most liquid asset and the easiest one to lose and/or have stolen. It is very common to hear of cash being stolen, but very unusual to hear of major plant or intangible assets being misplaced. 7. The three most generally practiced controls for cash are: a. Separation of the duties of accounting for and handling of cash. b. Making daily deposits in a bank of all cash received. c. Paying all obligations by prenumbered checks. The purpose of all these controls is to protect and safeguard cash. 8. Most companies tolerate a small percentage of uncollectible accounts receivable because if they monitored their customers so closely that there were never any bad debts, their credit policy would be so strict that many potential customers would be lost and ill will would be created among others. On the other hand, if a company has too many bad accounts, it could eventually go bankrupt. Thus, it is important that a company walk a fine line in deciding who should and should not be granted credit. If too strict, the firm may lose customers; if too lenient, it may lose profits and possibly even solvency. The optimal position for a company to take is to choose that point at which the marginal revenues from customers just equals the marginal cost of bad debts and other costs of servicing customers. 9. The allowance method of accounting for uncollectible receivables is required by the profession because it provides a better matching of expenses with revenues. For example, if a sale made in the last month of a year eventually became uncollectible, the bad debt would not be recognized until the

173

Chapter 6

174 be recorded. If customer service expenses were not recorded until the actual work was performed, sales revenue could be reported in periods earlier than the customer service expenses arising from those sales, resulting in poor matching of revenues and expenses. 14.* Some of the most common reasons for differences between bank balances and book balances are: a. Outstanding checks. b. Deposits in transit. c. Errors by either the bank or the depositor. d. Transactions that have been entered by the bank but not yet recorded by the company, such as (1) bank service charges, (2) collections for the company by the bank, (3) direct deposits, and (4) interest earned on the account. 15.* Bank balance additions and deductions do not require adjusting entries because they are adjustments for the bank, not the depositor. Most adjustments (for example, deposits in transit and outstanding checks) take care of themselves over time, and the ones that do not (bank errors) are corrected by notifying the bank. 16.* When a transaction is denominated in U.S. dollars, no special accounting is necessary by a U.S. company, even if the transaction is with a foreign party. However, when a U.S. company enters into a transaction in which the price is denominated in a foreign currency, the U.S. company must use special accounting procedures to recognize the change in the value of the transaction as foreign currency exchange rates fluctuate. *Relates to expanded material.

following year (at the time the bad debt is known) when using the direct write-off method. The revenue would be recognized in the first period and the expense in the second. With the allowance method, the amount of bad debts is estimated on the basis of past experience or industry averages and matched with revenues of that period. 10. The net balance of Accounts Receivable does not change when an uncollectible account is written off because the journal entry to write off the receivable decreases the Accounts Receivable balance and the Allowance for Bad Debts account by the same amount. Aging of accounts receivable is usually more accurate than basing the estimate on total receivables because the aging procedure considers the length of time receivables have been outstanding. Each age category is multiplied by an expected uncollectible rate rather than applying a general uncollectible rate to all receivables. Operating ratios such as accounts receivable turnover tell you how fast a company is collecting receivables. When examined over a period of time, trends in collectibility can be assessed. Having money tied up in accounts receivable is very expensive for an organization. Some companies have even gone bankrupt because they let their receivables get out of hand. Proper matching requires that both the sales and the associated warranty expense be recognized in the same period. Thus, even though the actual amount that will be incurred is not known at the end of the period, an estimate of the cost of customer services associated with warranty agreements must

11.

12.

13.

Chapter 6

175

PRACTICE EXERCISES
PE 61 (LO1) Classifying Major Business Activities Business Activity a. b. c. d. e. f. g. h. Acquiring inventory for resale. Buying and selling stocks and bonds of other companies. Selling shares of stock to investors for cash. Selling products or services. Buying property, plant, or equipment. Acquiring and paying for other operating items. Selling property, plant, or equipment. Borrowing cash from creditors. Revenue Recognition Type of Activity Operating Investing Financing Operating Investing Operating Investing Financing

PE 62 (LO2)

The correct answer is E. In order for revenue to be recognized, the earnings process must be substantially complete and cash collectibility must be reasonably assured. PE 63 (LO2) Revenue Recognition 2,080 1,760 3,840

Cash (65 $32)....................................................................... Accounts Receivable (55 $32)........................................... Sales Revenue................................................................ PE 64 (LO3) Cash Collection

Cash......................................................................................... Accounts Receivable..................................................... PE 65 (LO3) 1. Sales Discounts

1,760 1,760

Cash ($1,760 0.98)....................................................... Sales Discounts ($1,760 0.02).................................... Accounts Receivable............................................. Cash................................................................................. Accounts Receivable.............................................

1,724.80 35.20 1760.00 1,760 1,760

2.

Chapter 6

176

PE 66 (LO3) 1. 2.

Sales Returns and Allowances 640 640 640 640

Sales Returns and Allowances..................................... Cash........................................................................ Sales Returns and Allowances..................................... Accounts Receivable............................................. Computing Net Sales

PE 67 (LO3)

Gross sales........................................................................................... Less: Sales discounts......................................................................... Less: Sales returns and allowances.................................................. Net sales............................................................................................... PE 68 (LO3) Control of Cash

$2,500,000 (50,000) (75,000) $2,375,000

The correct answer is B. The specific balance in the cash account is usually not considered a control associated with cash. For any given company, the cash balance commonly falls well below the sum of inventory and accounts receivable. PE 69 (LO4) The Direct Write-Off Method 90,000 90,000

Bad Debt Expense.................................................................. Accounts Receivable..................................................... PE 610 (LO4) 1. 2. The Allowance Method

Bad Debt Expense.......................................................... Allowance for Bad Debts...................................... Allowance for Bad Debts............................................... Accounts Receivable............................................. Computing Net Accounts Receivable 2.

50,000 50,000 43,000 43,000

PE 611 (LO4) 1.

Before Write-Off Accounts receivable............. $200,000 Less: Allowance for bad debts.................................... 50,000 Net realizable value............... $150,000

After Write-Off Accounts receivable............. $157,000 ($200,000 $43,000) Less: Allowance for bad debts.................................... 7,000 ($50,000 $43,000) Net realizable value............... $150,000

PE 612 (LO4)

Collecting an Account Previously Written Off 7,000 7,000 7,000 7,000

Accounts Receivable............................................................. Allowance for Bad Debts............................................... Cash......................................................................................... Accounts Receivable..................................................... PE 613 (LO4)

Estimating Uncollectible Accounts Receivable as a Percentage of Credit Sales 8,600 8,600

Bad Debt Expense.................................................................. Allowance for Bad Debts............................................... $860,000 0.01 = $8,600 PE 614 (LO4)

Estimating Uncollectible Accounts Receivable as a Percentage of Total Receivables 5,100 5,100

Bad Debt Expense.................................................................. Allowance for Bad Debts............................................... To adjust the allowance account to the desired balance: $85,000 0.10 = $8,500; $8,500 $3,400 = $5,100 PE 615 (LO4)

Estimating Uncollectible Accounts Receivable Using Aging Accounts Receivable

Estimate of Losses from Uncollectible Accounts Percentage Estimated Age Balances to Be Uncollectible Current $16,450 1.75% 130 days past due 8,150 6 3160 days past due 7,150 15 6190 days past due 900 35 91120 day past due 2,000 65 Over 120 days past due 4,000 90 Totals $38,650

Amount $ 288 489 1,073 315 1,300 3,600 $7,065

PE 615 (LO4) 1.

(Concluded)

The $7,065 represents the receivables that are likely to be uncollectible. We need to adjust the allowance account to this balance with the following entry: Bad Debt Expense.......................................................... Allowance for Bad Debts...................................... 5,065 5,065

To adjust the allowance account to the desired ending balance: $7,065 $2,000 = $5,065 2. Bad Debt Expense.......................................................... Allowance for Bad Debts...................................... 10,665 10,665

To adjust the allowance account to the desired ending balance: $7,065 + $3,600 = $10,665 PE 616 (LO4) Evaluating Quality of Accounts Receivable

Begin the analysis of accounts receivable by dividing the ending allowance for bad debts by the ending accounts receivable balance to get the allowance for bad debts as a percentage of accounts receivable, as shown below. Ending Year Accounts Receivable Receivable Year 3 $60,450 Year 2 50,250 Year 1 43,200 Allowance for Bad Debts Ending Allowance as a Percentage for Bad Debts of Accounts $10,360 7,690 4,400 17.1% 15.3 10.2

In Year 1, the company believed it would not collect 10.2% of its accounts receivable. This percentage increased to 17.1% by Year 3. For some reason, the quality of accounts receivable has decreased over the past three years as evidenced by the fact that the company believes a greater percentage of its accounts receivable will not be collected. PE 617 (LO5) Accounts Receivable Turnover
Sales Revenue

A/R Turnover = Average Accounts Receivable = = 10.40 [($46,000 + $54,000)/2 ]

$520,000

PE 618 (LO5)

Average Collection Period

365 365 = = 35.1 Accounts Receivable Turnover 10.40 *

Average Collection Period = days

*The accounts receivable turnover of 10.40 was calculated in PE 617 by dividing sales by the average accounts receivable. PE 619 (LO6) Warranty Expense

Because the company expects 15% of all tires sold to require some type of warranty repair, 90 of the tires will require maintenance (600 0.15 = 90). Each warranty visit costs, on average, $20 in parts and labor so total warranty expense is $1,800 (90 $20 = $1,800). The journal entry to record this expense is as follows: Warranty Expense.................................................................. Estimated Warranty Liability......................................... PE 620 (LO6) Repairs under Warranty 1,250 900 350 1,800 1,800

Estimated Warranty Liability................................................. Wages Payable (to service employees)....................... Supplies.......................................................................... PE 621 (LO7) Bank Reconciliation*

Balance per bank statement....................................................................... 33,000 Add: Deposits in transit.............................................................................. 11,200 44,200 Deduct: Outstanding checks...................................................................... (21,300) Correct balance............................................................................................ 22,900 Balance per books....................................................................................... 23,040 Add: Interest earned.................................................................................... 110 23,150 Deduct: Bank service charge...................................................................... (250)

$ $

Correct balance............................................................................................ 22,900

*Relates to expanded material.

PE 622 (LO7)

Journal Entries from a Bank Reconciliation* 110 110 250 250 Currency 2,000 2,000

Cash......................................................................................... Interest Revenue............................................................ Service Charge Expense....................................................... Cash................................................................................. PE 623 (LO8) Journal Entry Transaction* to Record a Foreign

Accounts Receivable (fc)...................................................... Service Revenue............................................................ Accounts receivable: 100,000 baht/50 = $2,000 PE 624 (LO8)

Computation of Foreign Exchange Gains and Losses* U.S. Dollar Value of the Receivable $2,000 (100,000/50) $2,500 (100,000/40) $1,000 (100,000/100) Exchange Gain or Loss

November 6 December 31 March 23

A $500 foreign exchange gain is reported in Year 1, and a $1,500 foreign exchange loss is reported in Year 2.

*Relates to expanded material.

EXERCISES
E 625 (LO2) Recognizing Revenue

The Packers should probably recognize revenue from season ticket sales using the proportional performance method; this means that if there are eight home games, one-eighth of the total amount should be recognized for each game played. It is conceivable that the Packers could argue that a percentage of the revenue should be recognized at the time the season tickets are sold because selling the tickets is part of the earnings process. However, with season ticket sales guaranteed for such a long time in the future, the team isnt expending much effort on selling the tickets; rather, the earnings process is probably playing the game and hosting the ticket holders. E 626 (LO2) Recognizing Revenue

In order to decide when revenue should be recognized, we must consider the following two revenue recognition criteria: Is the work done? Is the cash collected or collectible? Work done: The work is not done when James Dee signs the contract to do the job. If past history shows that the guarantees do not result in a large amount of recleaning, then the work is done, or virtually done, when the job is completed. Cash collected or collectible: If past history shows that customers generally are reliable in paying, then James Dee does not have to wait until the cash is collected, or 30 days after the job is completed, before recognizing revenue. In summary, if past history shows that the free guarantee work is not significant and that customers are fairly reliable in paying, then revenue should be recognized at the time the job is completed, which is option (c). Because the work is guaranteed for five years, James Dee should also set up an estimated warranty account to recognize the future liability for recleaning jobs.

E 627 (LO2)

Recognizing Projects

RevenueLong-Term

Construction

Revenue is generally recognized on long-term construction projects using the percentage of completion method; revenue should be recognized each year for the percentage of the project that is completed during that year. Thus, if Wasatch Constructors completes 25% of the project the first year, 25% of the revenue should be recognized. If another 30% of the project is finished the second year (for a total of 55%), 30% of the revenue should be recognized in the second year. The difficulty, of course, is in estimating exactly what percentage of the work is completed. Because long-term construction projects usually have total price tags of several million (or even billion) dollars, changing the estimate for completed work by even 1% can dramatically change the amount of revenue recognized and net income reported. E 628 (LO2) Revenue Recognition

Yummy, Inc., should defer recognition of revenue from the sale of a franchise agreement until the earnings process is substantially complete and an exchange has taken place. Substantial completion of the earnings process is indicated by the new franchises commencement of operations. Similarly, an exchange has not taken place until the new franchise is operational. E 629 (LO3) Control of Cash

Because Maloney has access to both the incoming cash and the accounting records, she can use company funds through the fraudulent practice of lapping. That is, she can pocket the payment of an account receivable from a first customer and subsequently recognize that payment when a second customer pays. Likewise, the second customers account will not be credited until a third customer pays. Lapping thus allows for continued use of company funds. Also, Maloney could keep money remitted by customers for personal use and then write off the receivable as uncollectible. The customer would not receive any more statements, and the money would probably not be missed. These fraudulent practices can be prevented through a proper separation of duties. Specifically, cash receipts should be deposited by someone who does not have access to the accounting records.

E 630 (LO3)

Recording Sales Transactions 70,000

June 24 Accounts Receivable............................................. Sales Revenue.................................................. 70,000 Sold merchandise to Brooke Bowman, terms 2/10, n/30.

30 Cash........................................................................ 39,200 Sales Discounts..................................................... 800 Accounts Receivable....................................... 40,000 Received partial payment from Brooke Bowman. July 20 Cash........................................................................ 21,000 Sales Returns and Allowances............................. 9,000 Accounts Receivable....................................... 30,000 Received remaining payment from Brooke Bowman and accepted her return of merchandise that originally sold for $9,000. E 631 (LO3) Recording Sales Transactions 16,000

June 3 Accounts Receivable............................................. Sales Revenue.................................................. 16,000 Sold merchandise to Peart Company, terms 2/10, n/30. 7 Sales Returns and Allowances............................. Accounts Receivable....................................... Accepted return of merchandise from Peart Company.

650 650

21 Cash........................................................................ 15,350 Accounts Receivable....................................... 15,350 Received payment in full from Peart Company. E 632 (LO4) 1. 2. Estimating Bad Debts

Bad debt expense = $3,900 + $1,300 = $5,200 Bad debt expense = ($66,400 4% = $2,656); $2,656 + $1,300 = $3,956

3.

Bad debt expense = $350,000 1% = $3,500 (Note: Any balance in Allowance for Bad Debts is ignored when using the percentage of sales method.)

E 633 (LO4) 1.

Accounting for Bad Debts

a. The direct write-off method: Bad Debt Expense............................................................... 630,000 Accounts Receivable..................................................... 630,000 To record uncollectible accounts receivable of $630,000. Accounts Receivable.......................................................... Retained Earnings.......................................................... 35,000 To reinstate the balance previously written off as uncollectible. Cash...................................................................................... Accounts Receivable..................................................... 35,000 Received payment of $35,000. b. The allowance method: Allowance for Bad Debts.................................................... 630,000 Accounts Receivable..................................................... 630,000 To write off uncollectible accounts. Accounts Receivable.......................................................... Allowance for Bad Debts............................................... 35,000 To reinstate the balance previously written off as uncollectible. Cash...................................................................................... Accounts Receivable..................................................... 35,000 Received payment of $35,000. 35,000 35,000

35,000

35,000

Bad Debt Expense............................................................... 645,000 Allowance for Bad Debts............................................... 645,000 To adjust the allowance account to the desired balance of $650,000.* *$600,000 (beginning balance) $630,000 (written off in 2009) + $35,000 (restored in 2009) = $5,000 (remaining credit balance). $650,000 (desired balance) $5,000 (remaining credit balance) = $645,000 (adjustment needed).

2.

The direct write-off method is objective in that an account is written off at the time it proves to be uncollectible. This method, however, compromises the matching principle because expenses incurred in generating revenues may not be accurately matched with related revenues on a period-by-period basis. For example, sales made near the end of an accounting period may not be identified as uncollectible until the next period. Alternatively, when using

E 633 (LO4)

(Concluded)

the allowance method, uncollectible balances are accounted for during the period in which the sales occurred. Although the allowance method is generally accepted in practice, it may result in a somewhat imprecise expense amount; this is seen as a less serious problem than the failure to match revenues and expenses (direct write-off). E 634 (LO4)
1.
Write-offs

Accounting for Uncollectible Accounts Receivable

60,000 Beg. Bal. Bad Debt Expense End. Bal. 50,000 120,000 110,000

Allowance for Bad Debts

Answers: December 31, 2009 balance of Allowance for Bad Debts = $110,000 Bad debt expense for 2009 = $120,000
2.
Beg. Bal. Sales End. Bal.

Accounts Receivable
900,000 Collections 5,000,000 Write-offs 1,340,000 4,500,000 60,000

Answer: December 31, 2009 balance of gross Accounts Receivable = $1,340,000 E 635 (LO4) 0.5% 3.0% 16.0% 52.5% 92.0% Aging of Accounts Receivable $720,000 $395,000 $105,000 $52,000 $13,000 = = = = = $ 3,600 11,850 16,800 27,300 11,960 $71,510 $71,510 42,000 $29,510 29,510

Balance needed Prior balance Adjustment needed Journal Entry

Bad Debt Expense.................................................................. Allowance for Bad Debts............................................... 29,510 To record the bad debt expense.

E 636 (LO4) 1.

Aging of Accounts Receivable Category Amount Percentage 2% 10 30 75 Total $ 2,400 2,400 $13,990 13,990

Less than 30 days

$122,000 2,440 3160 days 24,000 6190 days 8,000 Over 90 days 9,000 6,750 Total estimated uncollectible accounts 2.

Bad Debt Expense.................................................................... Allowance for Bad Debts.................................................... 13,990 To record estimated allowance for bad debts.

3.

The net accounts receivable balance at December 31, 2009, is $149,010 ($163,000 $13,990). Direct Write-Off versus Allowance Method

E 637 (LO4) 1.

The direct write-off method is not an acceptable method of financial reporting for uncollectible receivables. It often violates the matching principle because accounts are written off in periods later than the sales are made. (Note: The direct write-off method is used for tax purposes by IRS requirement.) The allowance method would have resulted in a bad debt expense for the current year of $54,000 ($3,600,000 0.015). The direct write-off method resulted in an expense of $41,500 ($12,000 + $7,500 + $10,000 + $12,000). As a result, income before income taxes would be lower by $12,500 ($54,000 $41,500) if the allowance method were used. Accounting for Uncollectible ReceivablesPercentage of Sales Method 66,000

2.

E 638 (LO4)

2009: Bad Debt Expense.......................................................... Allowance for Bad Debts......................................... 66,000 Estimated bad debt expense as a percentage of sales ($4,400,000 1.5% = $66,000). Note: Any existing balance in the allowance for bad debts account is ignored when using the percentage of sales method.

E 638 (LO4)

(Concluded) 7,300 7,300

2010: Allowance for Bad Debts............................................... Accounts Receivable............................................... To write off Damon Shillings account as uncollectible. 2010: Accounts Receivable..................................................... Allowance for Bad Debts......................................... Cash................................................................................. Accounts Receivable............................................... Collected amount previously written off as uncollectible from Damon Shilling. E 639 (LO4)

7,300 7,300 7,300 7,300

Comparing the Percentage of Sales and the Percentage of Receivables Methods

The numbers given in the exercise imply the following two different computations with respect to Allowance for Bad Debts:
Keefer Computation: Allowance for Bad Debts Write-offs 240,000 Beg. Bal. 200,000
Bad Debt Expense End. Bal.

Keith & Harding Computation: Allowance for Bad Debts Write-offs 240,000 Beg. Bal. 200,000
Bad Debt Expense End. Bal.

320,000 280,000

740,000 700,000

In the Keefer computation, the amount of bad debt expense ($320,000) is determined using a percentage of sales calculation. With the other information that is given, the implied ending balance in the allowance for bad debts account is $280,000. Keith & Harding, the auditors, use an aging accounts receivable analysis to conclude that the ending balance in Allowance for Bad Debts should be $700,000; this ending balance implies a bad debt expense amount of $740,000. Given their calculations, Keith & Harding believe that Keefer should report an additional bad debt expense amount of $420,000 ($740,000 $320,000). The required adjusting entry is as follows: Bad Debt Expense.................................................................. Allowance for Bad Debts............................................... 420,000 420,000

E 640 (LO5) 1.

Ratio Analysis

Accounts Receivable Turnover

Formula Year 3 $3,700 ($1,400 + $1,800)/2 2.3 times Year 2 $3,875 ($1,800 + 2.2 times $16,549 ($5,800 + 2.8 times Sales Revenue Average Accounts Receivable

Parker Enterprises, Inc. $1,725)/2

Boulder, Inc. $6,205)/2

Sales Revenue Average Accounts Receivable

$17,825 ($5,525 + $5,800)/2 3.1 times

Average Collection Period Parker Enterprises, Inc. days Boulder, Inc. days 365 2.3 = 159 days 365 2.2 = 166 365 3.1 = 118 days 365 2.8 = 130

2.

Boulder, Inc., appears to have the better credit management policy. Its turnover is higher and its average collection period is shorter than Parkers. Assessing How Receivables Well Companies Manage Their

E 641 (LO5)

In determining the answer, it is necessary to first compute average receivables for each year. The average receivables for 2008 are $397,500 [($420,000 + $375,000)/2]. The average receivables for 2009 are $354,250 [($375,000 + $333,500)/2]. The accounts receivable turnover ratios are as follows: 2009
Sales Revenue Average Accounts Receivable $1,650,000 $354,250

2008
$1,425,000 $397,500

= 4.7 times

= 3.6

times The average collection periods are: 2009 2008

365 Accounts Receivable Turnover

365 365 = 78 days = 101 4.7 times 3.6 times

days Based on the above data, Hickory Company appears to be managing its receivables much better in 2009 than it did in 2008. It has increased its receivable turnover considerably (from 3.6 to 4.7 times per year) and has shortened its average collection period from 101 days to 78 days.

E 642 (LO5)

Measuring Accounts Receivable Quality 2009 2008 7.59% 2007 8.20%

Allowance for Bad Debts Accounts Receivable

7.01%

It appears that the creditworthiness of Kayleys customers has increased because the allowance for bad debts has become a smaller percentage of accounts receivable. E 643 (LO6) 1. Accounting for Warranties 500

First Month: Customer Service Expense................................................ Estimated Liability for Service...................................... 500 To record the estimated service costs for the first month ($10,000 0.05). Second Month: Customer Service Expense................................................ Estimated Liability for Service...................................... 400 To record the estimated service costs for the second month ($8,000 0.05). Third Month: Customer Service Expense................................................ Estimated Liability for Service...................................... 600 To record the estimated service costs for the third month ($12,000 0.05).

400

600

2.

Estimated Liability for Service................................................ Cash...................................................................................... 550 Supplies................................................................................ 330 To recognize the costs of servicing TVs under the warranty.

880