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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Warranties

In 2019, Lee Electronics, a franchise of electronics stores located in small towns throughout the United States, sold 450 32-inch televisions for $575 each. The televisions carry an attached 3-year warranty for repairs. Lee Electronics estimates that repair costs will average 2% of the total selling price.

Required:

1. How much is recorded in the Warranty Liability account as a result of selling the televisions during 2019, assuming no warranty service has yet been performed?

2. Provide the necessary adjusting entry at December 31, 2019.

To determine

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.

Explanation

The Warranty Liability amount to be recorded for t...

To determine

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 adjusting entry to record the Warranty Liability amount as on Dec. 31, 2019.

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