The journal for recording warranty for two years on cash basis. Given information: Company’s sales amounted to $10,000,000. Cost of providing warranty is 4% of sales. Duration of providing warranty is 2 years. Repair cost for first year is 218,000 including $150,000 for parts and $68,000 for labor. Repair cost for second year is $230,000 including $148,000 for parts and $82,000 for labor.

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Answer 1

Question

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 13, Problem 13.10E

a.

To determine

To prepare: The journal for recording warranty for two years on cash basis.

Given information:

Company’s sales amounted to $10,000,000.

Cost of providing warranty is 4% of sales.

Duration of providing warranty is 2 years.

Repair cost for first year is 218,000 including $150,000 for parts and $68,000 for labor.

Repair cost for second year is $230,000 including $148,000 for parts and $82,000 for labor.

b.

To determine

To prepare: The journal for recording warranty for two years on accrual basis.

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Grouper Ltd. manufactures a line of amplifiers that carry a three-year warranty against defects. Based on experience, the estimated warranty costs related to dollar sales are as follows: first year after sale-3% of sales; second year after sale-4% of sales; and third year after sale-5% of sales. Sales and actual warranty expenditures for the first three years of business were: Sales Warranty Expenditures 2021 $870,000 $17,100 2022 1,010,000 48,400 2023 1,041,000 80,000 (a) Calculate the amount that Grouper should report as warranty expense on its 2023 income statement and as a warranty liability on its December 31, 2023 SFP using the assurance-type warranty (expense-based approach). Assume that all sales are made evenly throughout each year and that warranty expenditures are also evenly spaced according to the rates above. Warranty expense $ Warranty liability $

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Consumer Corp. sells dishwashers and washing machines that come with a two-year unlimited warranty on parts and labour for repairs. The warranty is intended to assure customers that the appliances will operate as advertised. The warranty is expected to cost 4% of sales in the first year and 6% of sales in the second year, for a total of 10%. The provision for warranty has a credit balance of $161,000 at the beginning of 20X5. The following events and decisions relate to the warranty: 20X5 Sales revenue of $4,750,000 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 $8,500, and labour of $35,000. 20X6 Sales revenue from products covered by the warranty were $6,750,000. Both the sale and the warranty provision must be recorded. 20X6 Sales revenue of $6,750,000 was generated from products covered by the warranty. Warranty work…

Answer 2

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Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 13, Problem 13.10E

a.

To determine

To prepare: The journal for recording warranty for two years on cash basis.

Given information:

Company’s sales amounted to $10,000,000.

Cost of providing warranty is 4% of sales.

Duration of providing warranty is 2 years.

Repair cost for first year is 218,000 including $150,000 for parts and $68,000 for labor.

Repair cost for second year is $230,000 including $148,000 for parts and $82,000 for labor.

b.

To determine

To prepare: The journal for recording warranty for two years on accrual basis.

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Answer 3

Question

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 13, Problem 13.10E

a.

To determine

To prepare: The journal for recording warranty for two years on cash basis.

Given information:

Company’s sales amounted to $10,000,000.

Cost of providing warranty is 4% of sales.

Duration of providing warranty is 2 years.

Repair cost for first year is 218,000 including $150,000 for parts and $68,000 for labor.

Repair cost for second year is $230,000 including $148,000 for parts and $82,000 for labor.

b.

To determine

To prepare: The journal for recording warranty for two years on accrual basis.

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 4

Question

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 13, Problem 13.10E

a.

To determine