Concept introduction:
Warranty expense is known as the cost that a company has incurred or will incur to repair and replace the goods which he has sold already. Warranty is allowed for a limited period by the company and expenses are limited up to the stipulated amount.
Requirement 1:
The expenses bared by the Scompany in the year of 2013 and what amount is paid by the company.
Concept introduction:
Warranty is the cost that the firm has made or will make to repair and replace the goods which havesold to the customers. Warranty is given for the limited period by the firm and expenses are limited up to the fixed total.
Requirement 2:
To explain:
The company is more accurate while making the provisions.
Concept introduction:
Warranty expense is known as the cost that a company has incurred or will incur to repair and replace the goods which he has sold already. Warranty is allowed for a limited period by the company and expenses are limited up to the stipulated amount.
Requirement 3:
To explain:
Information related to the warranty expenses under footnote 10 in the year of 2013.
Want to see the full answer?
Check out a sample textbook solutionChapter 1 Solutions
Loose-Leaf for Managerial Accounting with Connect
- Woodmier Lawn Products introduced a new line of commercial sprinklers in 2017 that carry a one-year warranty against manufacturer’s defects. Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the industry. Based on that experience, warranty costs were expected to approximate 3% of sales. Sales of the sprinklers in 2017 were $3,000,000. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product: Accrued liability and expense Warranty expense (3% × $3,000,000) 90,000 Estimated warranty liability 90,000 Actual expenditures (summary entry) Estimated warranty liability 41,400 Cash, wages payable, parts and supplies, etc. 41,400 In late 2018, the company's claims experience was evaluated and it was determined that claims were far more than expected—4% of…arrow_forwardHazel Gird's products come with a one-year warranty. In 2014, sales totaled 2,500 units. It is expected that warranty repairs will average 10 per unit sold, with 30 percent of repairs completed in 2014 and 70 percent completed in 2015. How much warranty expense should Searches include in its 2014 income statement? Show solution.arrow_forwardAn entity prepares quarterly interim financial reports in accordance with IAS 34. The entity sells goods that are subject to warranty. The company made a provision for warranty in the first quarter of the year 2014 at 5% of sales, as the company in the past experienced a 5% claim on warranty based on sales. However, in the second quarter, a modification in the design of the product resulted to a design fault and the company expected the warranty claims to increase to 10% for the whole year 2014. Sales in the first and second quarters were P10 million and P15 million, respectively. What would be the warranty expense charged in the second quarter’s interim financial statements?arrow_forward
- For each of the following situations, indicate the liability amount, if any, which is reported on the balance sheet of Hirst Inc. at December 31, 2015.a. Hirst owes $110,000 at year end 2015 for its inventory purchases.b. Hirst agrees to purchase a $28,000 drill press in January 2016.c. During November & December 2015, Hirst sold products to a firm with a 90 day warranty against product failure. Estimate 2016 costs of honoring the warranty are $2,200. d. Hirst provided a profit-sharing bonus for its executives equal to 5% of its reported pre-tax annual income. The estimated pretax income for 2015-is $500,00. Bonuses are not paid until January of the following year.arrow_forwardProblem 1 In 2020, Plumpton Company started selling new computer that carried a 2-year warranty against defects Based on the manufacturer's recommendations, the entity estimated warranty cost as a percentage of sales. First year of warranty Second year of warranty 3% 9% Sales and actual warranty repairs are as follows: Sales Actual warranty repairs 2020 P5.000.000 100.000 2021 P7.000.000 250.000 1. How much is the warranty expense for 2020? 2. How much is the estimated warranty liability for 2021 ?arrow_forwardM6-17 Explaining Revenue Recognition and Bundled Sales A.J. Smith Electronics is a retail consumer electronics company that also sells extended warranty contracts for many of the products that it carries. The extended warranty provides coverage for three years beyond the expiration of the manufacturer’s warranty. In 2016, A.J. Smith sold extended warranties amounting to $1,700,000. The warranty coverage for all of these begins in 2017 and runs through 2019. The total expected cost of providing warranty services on these contracts is $500,000. a. How should A.J. Smith recognize revenue on the extended warranty contracts? b. Estimate the revenue, expense, and gross profit reported from these contracts in the year(s) that the revenue is recognized. c. In 2017, as a special promotion, A.J. Smith sold a digital camera (retail price $300), a digital photo printer (retail price $125), and an extended warranty contract for each (total retail price $75) as a package for a special price of $399.…arrow_forward
- 1. Peter Inc. manufactures and sells computer monitors with a three-year warranty. Warranty costs are expected to average 8% of sales during the warranty period. The following table shows the sales and actual warranty payments during the first two years of operations: Year Sales Warranty Payments 2016 $560,000 $6,160 2017 760,000 32,000 Based on these facts, what amount of warranty liability should Peter Inc. report on its balance sheet at December 31, 2017? a) $38,160 b) $67,440 c) $105,600 d) $32,000arrow_forwardStar Wars Computers manufactures and sells pagers and radio paging systems which include a 6-month warranty on product defects. It also sells an extended warranty which provides an additional two years of protection beyond the 6-month warranty. On July 1, 2024, it sold a paging system for $4,500 and an extended warranty for another $1,400. The customer paid for the entire transaction with cash. Assuming a December 31, 2025, fiscal year-end, the journal entry to record the revenue recognized related to the extended warranty in 2025 would include:arrow_forwardproblem and solution is already provided I just have some questions how does the predicted warranty expense ( the last part and it is also highlited) computed? answer: Total warranty expense of both the years is computed using the equation given below: Total warranty expense = {Total sales of 2014 + Total sales of 2015} × {Warranty rate of first and second year} = {P 4,200,000 + P 6,960,000} × {3% + 5%} = P 11,160,000 × 8% = P 892,800 Estimated warranty liability on December 31, 2015 is computed using the equation given below: Estimated warranty liability = Total warranty expense - Actual warranty expenditure of 2014 & 2015 = P 892,800 - {P 148,800 + P 180,000} = P 564,000 Hence, the estimated warranty liability on December 31, 2015 should be P 564,000. Step 2 b).Predicted…arrow_forward
- Star Wars Computers manufactures and sells pagers and radio paging systems which include a 6-month warranty on product defects. It also sells an extended warranty which provides an additional two years of protection beyond the 6-month warranty. On July 1, 2024, it sold a paging system for $4,500 and an extended warranty for another $1,400. The customer paid for the entire transaction with cash. The journal entry to record this transaction would include:arrow_forwardAn electronic goods retailer sells electronic products with a standard one-year warranty agreement. In addition, the retailer allows its customers to purchase an extended warranty for an additional 2 years for $200. The retailer sold 50,000 units of electronic products during the year ended 30 June 2020. Out of these, 1000 units of products are subject to the extended warranty. Briefly explain how the retailer should account for the extended warranty attached to the 1000 units of the electronic products. You need not show any calculation and journal entry.arrow_forwardEZ Wheels Corporation manufactures kick scooters. The company offers a one-year warranty on all scooters. During 2017, the company recorded net sales of $1,900 million. Historically, about 4% of all sales are returned under warranty and the cost of repairing and or replacing goods under warranty is about 30% of retail value. Assume that at the start of the year EZ Wheels’ balance sheet included an accrued warranty liability of $16.3 million and at the end of the year, the accrued warranty liability balance was $12.4 million. How much did EZ Wheels pay during the year to repair and/or replace scooters under warranty? this seems like the same question is it not 22.8?arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningFinancial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning