Leaky Black sells cars for $30,000 (cost to Leaky of 15,000) that come with a 2 year assurance-type warranty and the option for a 3 year extended warranty (beginning in year 3) for $5,000. The estimated warranty costs associated with the assurance type warranty are $2,000. The actual warranty costs are as follows: $500, $1,500, $1,000, S500, $2,000 for years 1- 5 respectively. Prepare all journal entries.

Leaky Black sells cars for $30,000 (cost to Leaky of 15,000) that come with a 2 year assurance-type warranty and the option for a 3 year extended warranty (beginning in year 3) for $5,000. The estimated warranty costs associated with the assurance type warranty are $2,000. The actual warranty costs are as follows: $500, $1,500, $1,000, S500, $2,000 for years 1- 5 respectively. Prepare all journal entries.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter8: Current And Contingent Liabilities

Section: Chapter Questions

Problem 57BE

See similar textbooks

Similar questions

Ace Appliances Inc. offers a 12-month warranty on all its appliances. AceAppliances estimates that one appliance out of each 1000 sold will require warranty service andthat the average cost per warranty claim is $300. Ace sold 30,000 appliances during 2020. Theestimated warranty liability at the beginning of the year was $ 4,500. Claims of $7,000 wereactually paid during the year to honour warranties. Ace Appliances has a December 31 year-end.Required:1. Calculate the estimated warranty expense for Ace Appliances for 2020.___________________2. Calculate the balance of the Estimated Warranty Liability account at December 31, 2020
Ace Appliances Inc. offers a 12-month warranty on all its appliances. AceAppliances estimates that one appliance out of each 1000 sold will require warranty service and that the average cost per warranty claim is $300. Ace sold 30,000 appliances during 2020. The estimated warranty liability at the beginning of the year was $ 4,500. Claims of $7,000 were actually paid during the year to honour warranties. Ace Appliances has a December 31 year-end. 1. Calculate the estimated warranty expense for Ace Appliances for 2020 2. Calculate the balance of the Estimated Warranty Liability account at December 31, 2020.
At the beginning of 2018, Angel Corporation began offering a two-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2018 were $180 million. Fifteen percent of the units sold were returned in 2018 and repaired or replaced at a cost of $5.3 million. The amount of warranty expense on Angel's 2018 income statement is: $5.3 million. $7.2 million. $10.6 million. $27.0 million.
In 2018, Bare company began selling a new calculator that carried a two-year warranty against defects. Bare projected the estimated warranty (as a percent of sales) as follows: First year of warranty 4% Second year of warranty 10% Sales and actual warranty repairs were: 2018 2019 Sales 5,000,000 9,000,000 Actual warranty repairs 200,000 560,000 How much is the amount of estimated liability for warranties on December 31, 2018?
Kap Co. offers a three year warranty on its products. Kap previously estimated warranty costs to be 2% of sales. Due to a technological advance in production at the beginning of year 3, Kap now believes 1% of sales to be a better estimate of warranty costs. Warranty costs of P800,000 and P960,000 were reported in year 1 and year 2, respectively. Sales for year 3 were P50,000,000. 1. What amount should be presented in Kap's year 3 financial statements as warranty expense?
Lindy Appliance begins operations in 2021 and offers a one-year warranty on all products sold. Total appliance sales in 2021 are $1,600,000, and Lindy estimates future warranty costs in 2022 to be 2% of current sales. Actual warranty costs in 2022 are $25,000. Also in 2022, Lindy has additional sales of $2,400,000 and revises its estimate of warranty costs associated with sales in 2022 to be 1.5%. What is the balance in Warranty Liability at the end of 2021 and 2022 and the contingent liability for warranties for the year ending December 31, 2022?
Lindy Appliance begins operations in 2021 and offers a one-year warranty on all products sold. Total appliance sales in 2021 are $1,600,000, and Lindy estimates future warranty costs in 2022 to be 2% of current sales. Actual warranty costs in 2022 are $25,000. Also in 2022, Lindy has additional sales of $2,400,000 and revises its estimate of warranty costs associated with sales in 2022 to be 1.5%.Required:1. Record the adjusting entry for estimated warranty costs at the end of 2021.2. Record the summary entry for actual warranty expenditures in 2022, assuming all costs were paid in cash.3. Record the adjusting entry for estimated warranty costs at the end of 2022.4. What is the balance in Warranty Liability at the end of 2021 and 2022?
In 2020, Dare Company began selling a new calculator that carried a two-year warranty against defects. The entity projected the estimated warranty cost as a percent of sales. First year of warranty 4% Second year of warranty 10% Sales and actual warranty repairs were: 2020 2021 Sales 5,000,000 9,000,000 Actual warranty repairs 200,000 560,000 Required: 1. Prepare journal entries in connection with the warranty using the "expense as incurred" approach. 2. Prepare journal entries in connection with the warranty using the "accrual" approach. 3. Determine the estimated warranty liability on December 31, 2021.
Raya Company offers a 3-year warranty on its products. Raya estimated warranty costs to be 5% of sales. Due to a technological advance in production at the beginning of 2021, Raya now believes 3% of sales to be a better estimate of warranty costs. Warranty costs of P500,000 and P1,000,000 were reported in 2019 and 2020, respectively. Sales for 2021 amounted to P25,000,000. What amount should be shown in the 2021 financial statements as warranty expense? Group of answer choices A. 750,000 B. 1,250,000 C. 2,000,000 D. 500,000
The extended warranty on a $1,250 dishwasher is 18% of the purchase price and lasts for five years. What is the effective cost per year of the extended warranty? $295 $225 $1,475 $45
Cheyenne Corporation issued a 4-year, $31,000, 4% note to Greenbush Company on January 1, 2020, and received a computer that normally sells for $24,268. The note requires annual interest payments each December 31. The market rate of interest for a note of similar risk is 11%.Prepare Cheyenne’s journal entries for (a) the January 1 issuance and (b) the December 31 interest.
A company estimates that 0.1% of their products will fail after the original warranty period but within 2 years of the purchase, with a replacement cost of $150.If they offer a 2 year extended warranty for $14, what is the company's expected value of each warranty sold?