Munster sells a product with a four-year warranty. Warranty costs are estimated as a percentage of sales as follows:Year of sale1%Year after sale1%Two years after sale1%Three years after sale4%Additional data:YearWarrantySalesExpenditures2019$50,000 $600 202060,000 800 202140,000 900 202270,000 2,500 If this is an assurance-type warranty and the company uses the modified cash method, what would be warranty expense for 2021?If this is an assurance-type warranty and and the company uses the GAAP approach of accruing warranty expense (and the related liability) in the year of the sale, what would be warranty expense for 2021?If the company considers that 7% of the selling price of the product represents payment for an implied service-type warranty, what amount of unearned warranty revenue would be disclosed on the balance sheet on December 31, 2022?

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Answered: Munster sells a product with a…

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 10RE

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Munster sells a product with a four-year warranty. Warranty costs are estimated as a percentage of sales as follows:

Year of sale	1%
Year after sale	1%
Two years after sale	1%
Three years after sale	4%

Additional data:

Year	Warranty Sales	Expenditures
2019	$50,000	$600
2020	60,000	800
2021	40,000	900
2022	70,000	2,500

If this is an assurance-type warranty and the company uses the modified cash method, what would be warranty expense for 2021?
If this is an assurance-type warranty and and the company uses the GAAP approach of accruing warranty expense (and the related liability) in the year of the sale, what would be warranty expense for 2021?
If the company considers that 7% of the selling price of the product represents payment for an implied service-type warranty, what amount of unearned warranty revenue would be disclosed on the balance sheet on December 31, 2022?

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