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*** Ltd, estimates that it will be required to pay $15,000 in three years' time to settle a warranty obligation. The risk-free discount rate applied...
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*** Ltd, estimates that it will be required to pay $15,000 in three

years' time to settle a warranty obligation. The risk-free discount rate applied is 3.5 % and the probability of cash outflows has already been assessed in calculating the $15,000.


At the end of the second year, *** Ltd. re-estimates the amount to be paid at the end of third year as $18,000. The same discount rate is still appropriate at 3.5%.
a) How is the re-estimation accounted for? (Show your calculations for any adjustment required for the journal entries.)    
b) Prepare the journal entries.

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