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Reliance Company manufactures and sells wireless video cell phones, which it guarantees for five years. It a cell phone tails, it is replaced free, but the customer is charged a service fee for handling. In the past, management has found that only 3 percent of the cell phones sold required replacement under the warranty. The average cell phone costs the company $240. At the beginning of September, the account for estimated liability for product warranties had a credit balance of $208,000. During September, 250 cell phones were returned under the warranty. The company collected $9,860 of service fees for handling. During the month, the company sold 2,800 cell phones. REQUIRED 1. Prepare journal entries to record (a) the cost of cell phones replaced under warranty and (b) the estimated liability for product warranties for cell phones sold during the month. 2. Compute the balance of the Estimated Product Warranty Liability account at the end of the month. 3. If the company's product warranty liability is underestimated, what are the effects on current and future years' income?

Reliance Company manufactures and sells wireless video cell phones, which it guarantees for five years. It a cell phone tails, it is replaced free, but the customer is charged a service fee for handling. In the past, management has found that only 3 percent of the cell phones sold required replacement under the warranty. The average cell phone costs the company $240. At the beginning of September, the account for estimated liability for product warranties had a credit balance of $208,000. During September, 250 cell phones were returned under the warranty. The company collected $9,860 of service fees for handling. During the month, the company sold 2,800 cell phones. REQUIRED 1. Prepare journal entries to record (a) the cost of cell phones replaced under warranty and (b) the estimated liability for product warranties for cell phones sold during the month. 2. Compute the balance of the Estimated Product Warranty Liability account at the end of the month. 3. If the company's product warranty liability is underestimated, what are the effects on current and future years' income?

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter5: Activity-based Costing And Management
Section: Chapter Questions
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In the book Principles of Accounting 12 edition,

Belverd E. + 5 others
Publisher: Cengage Learning
ISBN: 9781133593102
 
Question 3P Chapter 11 is currently unanswered. Would it be possible to provide the answer.

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Reliance Company manufactures and sells wireless video cell phones, which it guarantees for five years. It a cell phone tails, it is replaced free, but the customer is charged a service fee for handling. In the past, management has found that only 3 percent of the cell phones sold required replacement under the warranty. The average cell phone costs the company $240. At the beginning of September, the account for estimated liability for product warranties had a credit balance of $208,000. During September, 250 cell phones were returned under the warranty. The company collected $9,860 of service fees for handling. During the month, the company sold 2,800 cell phones. REQUIRED 1. Prepare journal entries to record (a) the cost of cell phones replaced under warranty and (b) the estimated liability for product warranties for cell phones sold during the month. 2. Compute the balance of the Estimated Product Warranty Liability account at the end of the month. 3. If the company's product warranty liability is underestimated, what are the effects on current and future years' income?
Transcribed Image Text:Reliance Company manufactures and sells wireless video cell phones, which it guarantees for five years. It a cell phone tails, it is replaced free, but the customer is charged a service fee for handling. In the past, management has found that only 3 percent of the cell phones sold required replacement under the warranty. The average cell phone costs the company $240. At the beginning of September, the account for estimated liability for product warranties had a credit balance of $208,000. During September, 250 cell phones were returned under the warranty. The company collected $9,860 of service fees for handling. During the month, the company sold 2,800 cell phones. REQUIRED 1. Prepare journal entries to record (a) the cost of cell phones replaced under warranty and (b) the estimated liability for product warranties for cell phones sold during the month. 2. Compute the balance of the Estimated Product Warranty Liability account at the end of the month. 3. If the company's product warranty liability is underestimated, what are the effects on current and future years' income?
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