Concept introduction:
Warranty Expense:
A company may issue warranty with the sale of its product which bounds the company to replace or repair in case of quality failure according to the terms of the warranty. The provision for the estimated warranty liability is made at the time of sale of the products and warranty expense is recorded. This provision is utilized at the time of performing the warranty contract.
Requirement 1:
To calculate:
The Warranty Liability amount to be recorded for the year 2019.
Concept introduction:
Warranty Expense:
A company may issue warranty with the sale of its product which bounds the company to replace or repair in case of quality failure according to the terms of the warranty. The provision for the estimated warranty liability is made at the time of sale of the products and warranty expense is recorded. This provision is utilized at the time of performing the warranty contract.
Requirement 2:
To prepare:
The
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Cornerstones of Financial Accounting
- Assurance-Type Warranty Clean-All Inc. sells washing machines with a 3-year assurance-type warranty. In the past, Clean-All has found that in the year after sale, warranty costs have been 3% of sales; in the second year after sale, 5% of sales; and in the third year after sale, 7% of sales. The following data are also available: Required: 1. Prepare the journal entries for the preceding transactions for 20192021. Closing entries are not required. 2. What amount would Clean-All report as a liability on its December 31, 2021, balance sheet, assuming the liability had a balance of 88,200 on December 31, 2018? 3. Next Level How would the failure to recognize a contingent liability affect the financial statements?arrow_forwardSpath Company borrows 75,000 by issuing a 4-year, noninterest-bearing note to a customer on January 1, 2019. In addition, Spath agrees to sell inventory to the customer at reduced prices over a 5-year period. Spaths incremental borrowing rate is 12%. The customer agrees to purchase an equal amount of inventory each year over the 5-year period so that a straight-line method of revenue recognition is appropriate. Required: Prepare the journal entries on Spaths books for 2019 and 2020. (Round answers to 2 decimal places.)arrow_forwardBlake Department Store sells television sets with one-year warranties that cover repair and replacement of television parts. In the month of June, Blake sells forty television sets with a per unit cost of $500. If Blake estimates warranty fulfillment at 10% of sales, what would be the warranty liability reported in June? A. $1,000 B. $2,000 C. $500 D. $20,000arrow_forward
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- Hamlet Corporation purchases computer equipment at a price of 100,000 on January 1, 2019, paying 40,000 down and agreeing to pay the balance in three 20.000 annual instalments beginning December 31, 2019. It is not possible to value either the equipment or the 60,000 note directly; how-ever, Hamlet's incremental borrowing rate is 12%. Required: 1. Prepare a schedule to compute the interest expense and discount amortization on the note. 2. Prepare all the journal entries for Hamlet to record the issuance of the note, each annual interest expense, and the three annual installment payments.arrow_forwardOn October 1, 2019, Grahams WeedFeed Inc. signs a contract to maintain the grounds for BigData Corp. The contract ends on March 31, 2020, and has a monthly payment of 3,200. The contract does not include any stipulations for additional periods. On June 1, Grahams WeedFeed and BigData sign a new 12-month contract that is retroactive to April 1, 2020. The monthly fee for the new contract is 4,000 per month and is also retroactive to April 1, 2020. During April and May of 2020, while the new contract was being negotiated, Grahams Weed Feed continued to maintain the grounds, and BigData continued to pay 3,200 per month. BigData was satisfied with Grahams WeedFeeds performance, and the only issue during negotiations was the monthly fee. Required: Determine if a valid contract exists between Grahams WeedFeed and BigData during April and May 2020.arrow_forwardOn January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at 12,000 per year, which is the normal standalone price that Mopps charges. On December 31, 2020, Mopps and Conklin agree to modify the contract. Mopps reduces the fee for the third year to 10,000, and Conklin agrees to a 4-year extension that will extend services through December 31, 2024, at a price of 15,000 per year. At the time that the contract is modified, Mopps is charging other customers 13,500 for the cleaning and janitorial service. Required: Should Mopps and Conklin treat the modification as a separate contract? If so how should Mopps account for the contract modification on December 31, 2020? Support your opinion by discussing the application to this case of the factors that need to be considered for determining the accounting for contract modifications.arrow_forward
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