In 2018, Carver Electronics Co. began selling a new computer that carried a two-year warranty against defects. Based on the manufacturer’s recommendations, Carver projects estimated warranty costs (as a percentage of dollar sales) as follows: First year of warranty…………………………………………………………….. 4% Second year of warranty………………………………………………………… 7% Sales and actual warranty repairs for 2018 and 2019 are as follows: 2019 2018 Sales $850,000 $700,000 Actual warranty repairs 30,750 18,500 1. Give the necessary journal entries to record the liability at the end of 2018 and 2019, assuming that there were no collections of previously reserved balances. 2. Analyze the warranty liability account as of the year ended December 31, 2019, to see if the actual repairs approximate the estimate. Should Carver revise the manufacturer’s warranty estimate? (Assume sales and repairs occur evenly throughout the year).
In 2018, Carver Electronics Co. began selling a new computer that carried a two-year warranty against defects. Based on the manufacturer’s recommendations, Carver projects estimated warranty costs (as a percentage of dollar sales) as follows:
First year of warranty…………………………………………………………….. 4%
Second year of warranty………………………………………………………… 7%
Sales and actual warranty repairs for 2018 and 2019 are as follows:
|
|
2019 |
2018 |
|
Sales |
$850,000 |
$700,000 |
|
Actual warranty repairs |
30,750 |
18,500 |
1. Give the necessary
2. Analyze the warranty liability account as of the year ended December 31, 2019, to see if the actual repairs approximate the estimate. Should Carver revise the manufacturer’s warranty estimate? (Assume sales and repairs occur evenly throughout the year).
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
