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Warranties
• LO13–5, LO13–6
Cupola Awning Corporation introduced a new line of commercial awnings in 2018 that carry a two-year warranty against manufacturer’s defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 3% of sales. Sales and actual warranty expenditures for the first year of selling the product were:
Required:
- 1. Does this situation represent a loss contingency? Why or why not? How should Cupola account for it?
- 2. Prepare
journal entries that summarize sales of the awnings (assume all credit sales) and any aspects of the warranty that should be recorded during 2018. - 3. What amount should Cupola report as a liability at December 31, 2018?
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Chapter 13 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/CONNECT
- Exercise 20-14 (Algo) Warranty expense [LO20-4] Woodmier Lawn Products introduced a new line of commercial sprinklers in 2020 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 2020 were $3,300,000. 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% × $3,300,000) 99,000 Warranty liability 99,000 Actual expenditures (summary entry) Warranty liability 45,540 Cash (or salaries payable, parts and supplies, etc.) 45,540 In late 2021, the company's claims experience was evaluated and it was determined that claims…arrow_forward81 PROBLEMS Problem 3-1 (IAA) repair warranty The sale price for each set is P15,000. The average repair cost per set is P800. Research has shown that 20% of all sets sold are repaired in thế first year and 40% in the second year. 2020 2021 300 500 150,000 Number of sets sold 40,000 Total payments'for warranty repairs Required: 1. Prepare journal entries in connection with the warranty using the "expense as incurred" approach. 2. Prepare journał entries in connection with the warranty using the "accrual" approach. 3. Determiņe the estimated warranty liability on December 31, 2021 4. Analyze the estimated warranty liability account to ascertain whether actual warranty costs approximate the estimate. The sales and warrantý repairs are made evenly during the year. 5. Prepare journal entry to correct the estimated warranty liability on December 31, 2021. 82 Problem 3-2 (AICPA Adapted) In 2020, Dare Company bęgan sellingarrow_forwardEXERCISE 6 On January 1,2019, Jackson Company introduced a new line of product that carries a 3 year warranty against factory defects. The product warranties provide assurance that the new line of product will function as intended based on agreed-upon specifications. Estimated warranty costs related to peso sales are as follows: 1% of sales in the year of sale, 2% of sales in the year after sale, and 3% of sales in the second year after sale. Sales and warranty expenditures for the period 2019 to 2021 were as follows: 2019 |2020 2021 Sales P 1,000,000 P 2,500,000 P 3,500,000 Actual warranty expenditures 8,000 38,000 112,500 REQUIRED: Prepare journal entries to record the foregoing for year 2019 to 2021. The company's reporting period is the calendar year.arrow_forward
- 5 Check my work Exercise 13-16 (Algo) Extended warranties [LO13-5, 13-6] Carnes Electronics sells consumer electronics that carry a 90-day manufacturer's warranty. At the time of purchase, customers are offered the opportunity to also buy a two-year extended warranty for an additional charge. During the year, Carnes received $430,000 for these extended warranties, and on average the warranties were 20% expired by year end. Required: 1-a. Does this situation represent a loss contingency? 1-b. How should it be accounted for? 2. Prepare journal entries that summarize sales of the extended warranties and recognition of any revenue associated with those warranties. Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 2 How should it be accounted for? Revenue is recognized as a(n) and warranty revenue is computed using the Req 1A Req 2 >arrow_forwardQuestion 13 Masterpiece Sales Company offers warranties on all their electronic goods. Warranty expense is estimated at 3% of sales revenue. In 2019, the company had $603,000 in sales. In the same year, Masterpiece Sales replaced defective goods with goods that had a cost of $18,500. Which of the following is the entry needed to record the replacement of the defective goods? Warranty Expense Estimated Warranty Payable 18,090 18,090 O Estimated Warranty Payable Merchandise Inventory 18,500 18,500 Estimated Warranty Payable 16,500 Merchandise lInventory 16,500 18,090 O Warranty Expense Merchandise Inventory 18,090 «>arrow_forwardProblem 6-2 (Algo) Performance obligations; warranties; option [LO6-2, 6-4, 6-5] Creative Computing sells a tablet computer called the Protab. The $890 sales price of a Protab Package includes the following: • One Protab computer. • A 6-month limited warranty. This warranty guarantees that Creative will cover any costs that arise due to repairs or replacements associated with defective products for up to six months. • A coupon to purchase a Creative Probook e-book reader for $145, a price that represents a 50% discount from the regular Probook price of $290. It is expected that 25% of the discount coupons will be utilized. • A coupon to purchase a one-year extended warranty for $65. Customers can buy the extended warranty for $65 at other times as well. Creative estimates that 35% of customers will purchase an extended warranty. • Creative does not sell the Protab without the limited warranty, option to purchase a Probook, and the option to purchase an extended warranty, but estimates…arrow_forward
- Question 10 A Plus Appliances sells dishwashers with a four-year warranty. In 2019, sales revenue for dishwashers is $94,000. The company estimates warranty expense at 6.5% of revenues. What is the total estimated warranty payable of A Plus Appliances as of December 31,2019? A Plus Appliances began operating in 2019. (Round your final answer to the nearest dollar.) O $1548 O $4230 O $6110 O $3318 11:21 AN 4/22/202arrow_forwardPROBLEM 8 On January 1, 2022, Clark Co. received a P3,000,000, 10% note from a customer upon the sale of its goods. The note is to be paid in six equal semi-annual installments, plus interest on the outstanding balance every June 30 and December 31, starting June 30, 2021. The effective rate on the note is 9%. 1. How much is the note upon initial recognition? 2. How much is the interest income recognized by Clark in 2022? 3. How much is the carrying amount of the note on December 31, 2023?arrow_forwardQUESTION 3 Staples extends a lifetime replacement warranty on all its financial calculators. Using past experience, Staples estimates that 1% of all units sold will be returned and require replacement at their average cost. On January 1, 2020, the balance in Staples' Estimated Warranty Liability account was $2,020. On January 2nd 2020 Staples purchased 6,000 calculators for $240,000 to have available in inventory. Staples sells its calculators for $50/unit, and during 2020, sales totaled $275,000. The actual number of units returned and replaced was 50. 1. Prepare the entry to estimate warranty liabilities based on the calculators sold for 2020. Assume the adjustment is made on December 31". 2. Record the replacement of the calculators returned in 2020 (use a date of December 31) 3. Calculate the balance in the Estimated Warranty Liability account at December 31, 2020.arrow_forward
- Chapter 4/Question 3: Mobiles Co sells goods with a one year warranty under which customers are covered for any defect that becomes apparent within a year of purchase. In calendar year 20X4, Mobiles Co sold 100,000 units. The company expects warranty claims for 5% of units sold. Half of these claims will be for a major defect, with an average claim value of $50. The other half of these claims will be for a minor defect, with an average claim value of $10. What amount should Mobiles Co include as a provision in the statement of financial position for the year ended 31 December 20X4?arrow_forwardQuestion 12 On August 1, 2020, Alba Trading sold a machine for $13,000 cash with a two-year parts warranty. On March 1, 2021, the machine requires on-site repairs which cost $200 of the repair parts inventory. Alba estimates warranty costs to be 4% of dollar sales. In 2020, Alba reports warranty expense of: O A. $ 720. O B. $ 320. O C. $ 520. O D. $ 200.arrow_forwardP-5*** SAN Company began selling new line of product that carries a one year warranty against defects. Based upon experience the estimated warranty costs related to peso sales is 5%. The selling price per unit of product is P1500. The number of units sold in 2011 and 2012 are 12,000 units and 20,000 units, respectively. Actual warranty expenditures for the year 2011 amounted to P800,000 and in 2012, the warranty expenditures amountedto P1,200,000. 8. At December 31,2011 and December 31,2012 financial statements, how much shall be reported as Accrual approach Expense approach Estimated warranty liability,2011 Warranty expense,2011 Estimated warranty liability.2012arrow_forward
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
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