WarrantiesKim's Athletics sells bicycles and other sports and athletic equipment. Sales and expected warranty claims for the year are as follows:Expected Warranty ClaimsItemUnit Salesfor Warranty PeriodCost per ClaimMountain bikes1,100Racing bik6001 claim per 100 sold10 claims per 100 sold$5629Snowboards2,4004 claims per 100 sold34Required:1. Prepare the entry to record warranty expense for Kim's for the year. If an amount box does not require an entry, leave it blank.Dec. 31(Record warranty expense)382. Conceptual Connection: Why does Kim's have to record a liability for future warranty claims?Warranties areareTherefore, companies must recordand a correspondingif such contingent amounts

Warranty.A warranty is a promise a company gives to a buyer to replace or repair a product if it…

Warranties Kim's Athletics sells bicycles and other sports and athletic equipment. Sales and expected warranty claims for the year are as follows: Expected Warranty Claims Item Unit Sales for Warranty Period Cost per Claim Mountain bikes Racing bis 1,100 600 Snowboards 2,400 1 claim per 100 sold 10 claims per 100 sold 4 claims per 100 sold $56 29 34 Required: 1. Prepare the entry to record warranty expense for Kim's for the year. If an amount box does not require an entry, leave it blank. Dec. 31 (Record warranty expense) 88 2. Conceptual Connection: Why does Kim's have to record a liability for future warranty claims? Warranties are are Therefore, companies must record and a corresponding if such contingent amounts

Warranties Kim's Athletics sells bicycles and other sports and athletic equipment. Sales and expected warranty claims for the year are as follows: Expected Warranty Claims Item Unit Sales for Warranty Period Cost per Claim Mountain bikes Racing bis 1,100 600 Snowboards 2,400 1 claim per 100 sold 10 claims per 100 sold 4 claims per 100 sold $56 29 34 Required: 1. Prepare the entry to record warranty expense for Kim's for the year. If an amount box does not require an entry, leave it blank. Dec. 31 (Record warranty expense) 88 2. Conceptual Connection: Why does Kim's have to record a liability for future warranty claims? Warranties are are Therefore, companies must record and a corresponding if such contingent amounts

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 71E: Warranties Eds Athletics sells bicycles and other sports and athletic equipment. Sales and expected...

See similar textbooks

Similar questions

Shoe Hut sells custom, handmade shoes. It offers a one-year warranty on all shoes for repair or replacement. Review each of the transactions and prepare any necessary journal entries for each situation. A. May 31: Shoe Hut sells 100 pairs of shoes during the month of May at a sales price per pair of shoes of $240 cash. Shoe Hut records warranty estimates when sales are recognized and bases warranty estimates on 4% of sales. B. June 2: A customer files a warranty claim that Shoe Hut honors in the amount of $30 for repair to laces. Laces Inventory corresponds to shoelace inventory used for repairs. C. June 4: Another customer files a warranty claim that Shoe Hut honors. Shoe Hut replaces the damaged shoes at a cost of $200, affecting their Shoe Replacement Inventory account. D. August 10: Shoe Hut explores the possibility of bankruptcy, given the current economic conditions (recession). It determines the bankruptcy is unlikely to occur (remote).
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?
Warranties Eds Athletics sells bicycles and other sports and athletic equipment. Sales and expected warranty claims for the year are as follows: Required: 1. Prepare the entry to record warranty expense for Eds for the year. 2. CONCEPTUAL CONNECTION Why does Eds have to record a liability for future warranty claims?
Warranties Kim’s Athletics sells bicycles and other sports and athletic equipment. Sales and expected warranty claims for the year are as follows: Item Unit Sales Expected Warranty Claimsfor Warranty Period Cost per Claim Mountain bikes 625 5 claims per 100 sold $40 Racing bikes 150 1 claims per 15 sold 90 Snowboards 400 2 claim per 40 sold 35 Required: 1. Prepare the entry to record warranty expense for Kim's for the year. If an amount box does not require an entry, leave it blank. Dec. 31 - Select - - Select - - Select - - Select - (Record warranty expense) 2. Conceptual Connection: Why does Kim’s have to record a liability for future warranty claims? Warranties are . Therefore, companies must record and a corresponding if such contingent amounts are .
Kimber Sales offers warranties on all their electronic goods. Warranty expense is estimated at 3.5% of sales revenue. In 2018, Kimber had $333,000 of sales. In the same year, Kimber paid out $8,750 of warranty payments. Provide the journal entry to record the warranty expense. What is the balance of the liability account? Account name Debit Credit
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?
Blue Jay, Inc., manufactures and sells computer monitors with a three-year warranty.Warranty costs are expected to average 7% of sales during the warranty period. The followingtable shows the sales and actual warranty payments during the first two years of operations:Year Sales Warranty Payments2018 $650,000 $ 5,8502019 850,000 42,500Based on these facts, what amount of warranty liability should Blue Jay, Inc., report on itsbalance sheet at December 31, 2019?a. $48,350b. $56,650c. $105,000d. $42,500
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?
Hall Company sells merchandise with a one-year warranty. In the current year, sales consist of 4,413 units. It is estimated that warranty repairs will average $15 per unit sold and 30% of the repairs will be made in the current year and 70% in the next year. In the current year's income statement, Hall should show warranty expense of a.$0 b.$66,195 c.$46,337 d.$19,859
On September 1, Year 1, Carolina Electronics Company has 1,150 streaming devices ready for sale. On October 1, 820 are sold at $120 each with a 1-year assurance-type warranty. Carolina estimates that the warranty cost on each streaming device sold will probably average $7 per unit. During the final 3 months of Year 1, Carolina incurred warranty costs of $3,450. Warranty costs in Year 2 were $2,290. Required: 1. Prepare the journal entries for the preceding transactions. 2. Show how the preceding items would be reported on the December 31, Year 1, balance sheet. 3. Prepare the journal entries for the preceding transactions using the modified cash basis method.
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
Calla Corp. sells equipment that comes with a two-year unlimited warranty on parts and labour for repairs. All sales are cash sales. The warranty is intended to assure customers that the appliances will operate as advertised. The warranty is expected to cost 2% of sales in the first year and 4% of sales in the second year, for a total of 6%. The provision for warranty has a credit balance of $189,000 at the beginning of 20X5. The following events and decisions relate to the warranty: 20X5 Sales revenue of $4,650,000 was generated from products covered by the warranty. Both the sale and the warranty provision must be recorded. 20X5 Warranty work consumed parts inventory with a cost of $8,300, and labour of $33,000. Labour costs were paid in cash. 20X6 Sales revenue from products covered by the warranty were $6,650,000. Both the sale and the warranty provision must be recorded. 20X6 Warranty work…