BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

Solutions

Chapter
Section
BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
51 views

Newton Company introduced a line of laptop computers in 2019 that carry a 1-year assurance-type warranty. Based on experience with other computers that it sells, Newton estimated warranty costs as 3% of net sales. Net sales of the laptop in 2019 were $5,000,0000, and Newton recorded warranty expense of $150,000. In 2020, based on the previous years’ warranty costs, Newton revises its estimate of warranty costs to 1% of net sales. In 2020, Newton reported $8,000,000 in net sales of the laptop.

Required:

  1. 1. Prepare any entry needed in 2020 to account for this change.
  2. 2. Next Level Discuss the advantages and disadvantages of accounting for a change in this manner.

1.

To determine

Prepare journal entry to record the change in percentage to estimate warranty costs in 2020.

Explanation

Change in an accounting estimate: When a company changes or revises an estimate due to additional information or new experience, such a change is referred to as change in accounting estimate. Few examples are change in accounting estimate could be a change in service life of an asset from 7 years to 5 years, or change in percentage to estimate uncollectible accounts receivables, or change in percentage to estimate warranty costs.

Prepare journal entry to record the change in percentage to estimate warranty costs in 2020.

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
2020    
  Warranty Expense 80,000 
&...

2.

To determine

Explain the advantages and disadvantages of recording this type of reporting method.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Describe the two-tier client-server model.

Accounting Information Systems

Define the term product

MKTG 12:STUDENT ED.-TEXT

How do firms forecast the demand for human resources?

Foundations of Business (MindTap Course List)

As a first step, we need to estimate what percentage of MMMs capital comes from debt, preferred stock, and comm...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

List five ratios that are automatically provided by the vertical analysis of income statements.

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

What is a predetermined overhead rate? Explain why it is used.

Cornerstones of Cost Management (Cornerstones Series)

Explain Says law in terms of a barter economy.

Economics (MindTap Course List)