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Jims Discount Warehouse sells three-year extended warrantees on its televisions and other electronics. As of...

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Question

Accounting

  1. Jims Discount Warehouse sells three-year extended warrantees on its televisions and other electronics. As of December 31, 2019, Jims estimates expected cash flows associated with electronics sold to date as follows for the next three years:

Cash Flow Estimate

X

Probability Assessment

=

Expected Cash Flow

2020

$15,000

0.25

$3,750

20,000

0.40

8,000

27,000

0.35

9,450

Total

21,200

2021

20,000

.35

7,000

22,500

.35

7,875

30,000

.30

9,000

23,875

2022

30,000

.25

7,500

35,000

.25

8,750

40,000

.50

20,000

36,250

Assume the cash flows will occur at the end of the respective years and that the pure rate of interest, plus the expected inflation rate of annual interest equals 4.1%. Use the expected cash flow technique to value the warranty obligation for Jims Discount Warehouse.

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