Effect of warranty obligations and payments on financial statements
The Chair Company provides a 120-day parts-and-labor warranty on all merchandise it sells. The Chair Company estimates the warranty expense for the current period to be $2,650. During the period a customer returned a product that cost $1,830 to repair.
Required
a. Show the effects of these transactions on the financial statements using a horizontal statements model like the example shown here. Use a + to indicate increase, a − for decrease, and NA for not affected. In the
b. Discuss the advantage of estimating the amount of warranty expense.
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