Milan Company, a manufacturer of heavy machinery, grants a four-year warranty on its products. The Estimated Liability for Product Warranty account shows the following transactions for the year: Opening Balance P45,000 Provision (made at interim dates) 20,000 P65,000 Cost of servicing claims (12,000) Ending balance (before adjustment) P53,000 A review of unsettled claims and the company's experience indicates that claims have averaged 2% of net sales per year. The following additional information is available from the company's records at the end of the current year: Gross Sales P2,040,000 40,000 P1,350,000 Sales returns and allowances Cost of goods sold Requirements: a. Prepare any necessary adjusting journal entries, giving effect to the proper accounting treatment of product warranties. Support any entries with clearly detailed computations. The book shave not been closed. b. Identify the amount of the expense included in the determination of net income and the amount of the liability presented in the balance sheet for warranties.

Milan Company, a manufacturer of heavy machinery, grants a four-year warranty on its products. The Estimated Liability for Product Warranty account shows the following transactions for the year: Opening Balance P45,000 Provision (made at interim dates) 20,000 P65,000 Cost of servicing claims (12,000) Ending balance (before adjustment) P53,000 A review of unsettled claims and the company's experience indicates that claims have averaged 2% of net sales per year. The following additional information is available from the company's records at the end of the current year: Gross Sales P2,040,000 40,000 P1,350,000 Sales returns and allowances Cost of goods sold Requirements: a. Prepare any necessary adjusting journal entries, giving effect to the proper accounting treatment of product warranties. Support any entries with clearly detailed computations. The book shave not been closed. b. Identify the amount of the expense included in the determination of net income and the amount of the liability presented in the balance sheet for warranties.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter9: Current Liabilities And Contingent Obligations

Section: Chapter Questions

Problem 14P: Assurance-Type Warranty Clean-All Inc. sells washing machines with a 3-year assurance-type warranty....

See similar textbooks

Similar questions

Assurance-Type Warranty Clean-All Inc. sells washing machines with a 3-year assurance-type warranty. In the past, Clean-All has found that in the year after sale, warranty costs have been 3% of sales; in the second year after sale, 5% of sales; and in the third year after sale, 7% of sales. The following data are also available: Required: 1. Prepare the journal entries for the preceding transactions for 20192021. Closing entries are not required. 2. What amount would Clean-All report as a liability on its December 31, 2021, balance sheet, assuming the liability had a balance of 88,200 on December 31, 2018? 3. Next Level How would the failure to recognize a contingent liability affect the financial statements?
Spath Company borrows 75,000 by issuing a 4-year, noninterest-bearing note to a customer on January 1, 2019. In addition, Spath agrees to sell inventory to the customer at reduced prices over a 5-year period. Spaths incremental borrowing rate is 12%. The customer agrees to purchase an equal amount of inventory each year over the 5-year period so that a straight-line method of revenue recognition is appropriate. Required: Prepare the journal entries on Spaths books for 2019 and 2020. (Round answers to 2 decimal places.)
On December 1 of the current year, Jordan Inc. assigns 125,000 of its accounts receivable to McLaughlin Company for cash. McLaughlin Company charges a 750 service fee, advances 85% of Jordans accounts receivable, and charges an annual interest rate of 9% on any outstanding loan balance. Prepare the related journal entries for Jordan. Refer to RE6-10. On December 31, Jordan Inc. received 50,000 on assigned accounts. Prepare Jordans journal entries to record the cash receipt and the payment to McLaughlin.
On December 1 of the current year, Jordan Inc. assigns 125,000 of its accounts receivable to McLaughlin Company for cash. McLaughlin Company charges a 750 service fee, advances 85% of Jordans accounts receivable, and charges an annual interest rate of 9% on any outstanding loan balance. Prepare the related journal entries for Jordan.
Chemical Enterprises issues a note in the amount of $156,000 to a customer on January 1, 2018. Terms of the note show a maturity date of 36 months, and an annual interest rate of 8%. What is the accumulated interest entry if 9 months have passed since note establishment?
On October 1, 2019, Grahams WeedFeed Inc. signs a contract to maintain the grounds for BigData Corp. The contract ends on March 31, 2020, and has a monthly payment of 3,200. The contract does not include any stipulations for additional periods. On June 1, Grahams WeedFeed and BigData sign a new 12-month contract that is retroactive to April 1, 2020. The monthly fee for the new contract is 4,000 per month and is also retroactive to April 1, 2020. During April and May of 2020, while the new contract was being negotiated, Grahams Weed Feed continued to maintain the grounds, and BigData continued to pay 3,200 per month. BigData was satisfied with Grahams WeedFeeds performance, and the only issue during negotiations was the monthly fee. Required: Determine if a valid contract exists between Grahams WeedFeed and BigData during April and May 2020.
Milan Company, a manufacturer of heavy machinery, grants a four-year warranty on its products. The Estimated Liability for Product Warranty account shows the following transactions for the year:Opening Balance P45,000Provision (made at interim dates) 20,000P65,000Cost of servicing claims (12,000)Ending balance (before adjustment) P53,000A review of unsettled claims and the companys experience indicates that claims have averaged 2% of net sales per year.The following additional information is available from the companys records at the end of the current year: Gross Sales P2,040,000Sales returns and allowances 40,000Cost of goods sold P1,350,000 Requirements: Prepare any necessary adjusting journal entries, giving effect to the proper accounting treatment of product warranties. Support any entries with clearly detailed computations. The book shave not been closed. Identify the amount of the expense included in the determination of net income and the amount of the liability presented in…
Haeir Co. sells washing machines that carry a three-year warranty against manufacturer's defects. Based on the entity's experience, warranty costs are estimated at P 300 per machine. During the current year, the entity sold 2,400 washing machines and paid warranty costs of P 170,000. What amount should be reported as warranty expense for the years? What amount should be reported as warranty liability at year-end? respectively * A.P 720,000 and P 170,000 B.P 170,000 and P 720,000 C.P 240,000 and P 550,000 D.P 720,000 and P 550,000
A company manufactures electronic equipment and offers a one-year warranty with each unit sold. For the year, the company sold 25,000 units. Based on historical averages, management expects 4% of the units sold will need warranty work. The estimated warranty cost per unit is $100.Required:Estimate (a) the number of units that will need warranty work and (b) future warranty costs. (c) Prepare the year-end adjusting entry for estimated warranty costs, assuming none of the units sold in the current year required warranty work. (d) Alternatively, prepare the year-end adjusting entry for estimated warranty costs, assuming that 25% of the estimated warranty work has already occurred by the end of the current year. How would your answers change if management’s estimate of warranty work increases to 5% of units sold and the estimated warranty cost per unit increases to $120?
Whit corporation sells washing machine that carry a three year warranty against manufacturer's defect. The company assures that the product will function as intended based on agreed -upon specification. Based on the industry experience, waarranty costs were estimated at P300 per machine. During 2022, Whit sold 24,000 washing machines and paid warranty coss of 1,700,000. In its profit or loss statement for the year ended December 31,2022. Whit should report warranty expense of?