Pronghorn Music Emporium carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music. Pronghorn uses two sales promotion techniques—warranties and premiums—to attract customers. Musical instruments and sound equipment are sold with a 1-year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 1% of sales. The premium is offered on the recorded and sheet music. Customers receive a coupon for each dollar spent on recorded music or sheet music. Customers may exchange 200 coupons and $10 for an MP3 player. Pronghorn pays $22 for each player and estimates that 60% of the coupons given to customers will be redeemed. Pronghorn’s total sales for 2020 were $6,830,000—$5,566,000 from musical instruments and sound reproduction equipment and $1,264,000 from recorded music and sheet music. Replacement parts and labor for warranty work totaled $91,000 during 2020 ($45,000 of the work is related to pre-2020 sales). A total of 6,470 players used in the premium program were purchased during the year and there were 1,192,000 coupons redeemed in 2020. The balances in the accounts related to warranties and premiums on January 1, 2020, were as shown below. Premium Inventory $ 34,610 Premium Liability 41,880 Warranty Liability 54,300 Pronghorn Music Emporium is preparing its financial statements for the year ended December 31, 2020. Determine the amounts that will be shown on the 2020 financial statements for the following. (a) Warranty Expense $ (b) Warranty Liability $ (c) Premium Expense $

Corporate Financial Accounting

14th Edition

ISBN:9781305653535

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter10: Liabilities: Current, Installment Notes, And Contingencies

Section: Chapter Questions

Problem 10.22EX

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Problem 13-12

Pronghorn Music Emporium carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music. Pronghorn uses two sales promotion techniques—warranties and premiums—to attract customers.

Musical instruments and sound equipment are sold with a 1-year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 1% of sales.

The premium is offered on the recorded and sheet music. Customers receive a coupon for each dollar spent on recorded music or sheet music. Customers may exchange 200 coupons and $10 for an MP3 player. Pronghorn pays $22 for each player and estimates that 60% of the coupons given to customers will be redeemed.

Pronghorn’s total sales for 2020 were $6,830,000—$5,566,000 from musical instruments and sound reproduction equipment and $1,264,000 from recorded music and sheet music. Replacement parts and labor for warranty work totaled $91,000 during 2020 ($45,000 of the work is related to pre-2020 sales). A total of 6,470 players used in the premium program were purchased during the year and there were 1,192,000 coupons redeemed in 2020.

The balances in the accounts related to warranties and premiums on January 1, 2020, were as shown below.

Premium Inventory		$ 34,610
Premium Liability		41,880
Warranty Liability		54,300

Pronghorn Music Emporium is preparing its financial statements for the year ended December 31, 2020. Determine the amounts that will be shown on the 2020 financial statements for the following.

(a)	Warranty Expense	$
(b)	Warranty Liability	$
(c)	Premium Expense	$
(d)	Premium Inventory	$
(e)	Premium Liability	$

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