Intermediate Accounting (2nd Edition)
2nd Edition
ISBN: 9780134730370
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Chapter 13, Problem 13.3MC
To determine
To identify: The correct option.
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Grouper Ltd. manufactures a line of amplifiers that carry a three-year warranty against defects. Based on experience, the estimated
warranty costs related to dollar sales are as follows: first year after sale-3% of sales; second year after sale-4% of sales; and third
year after sale-5% of sales. Sales and actual warranty expenditures for the first three years of business were:
Sales
Warranty
Expenditures
2021
$870,000
$17,100
2022
1,010,000
48,400
2023
1,041,000
80,000
(a) Calculate the amount that Grouper should report as warranty expense on its 2023 income statement and as a warranty liability on
its December 31, 2023 SFP using the assurance-type warranty (expense-based approach). Assume that all sales are made evenly
throughout each year and that warranty expenditures are also evenly spaced according to the rates above.
Warranty expense
$
Warranty liability
$
Blue Jay, Inc., manufactures and sells computer monitors with a three-year warranty.Warranty costs are expected to average 7% of sales during the warranty period. The followingtable shows the sales and actual warranty payments during the first two years of operations:Year Sales Warranty Payments2018 $650,000 $ 5,8502019 850,000 42,500Based on these facts, what amount of warranty liability should Blue Jay, Inc., report on itsbalance sheet at December 31, 2019?a. $48,350b. $56,650c. $105,000d. $42,500
Presley Company sells a product that includes a one-year warranty on parts and labor. During the year, 10,000 units are sold. Presley expects that 3% of the units will be defective and that the average warranty cost will be $50 per unit. Actual warranty costs incurred during the year were $14,000.
Instructions
Prepare the journal entries to record (a) the estimated warranty costs and (b) the actual costs incurred.
Prepare the necessary journal entries for the following transactions:
(a) On September 1, Lore Company borrowed $150,000 from National Bank on a 6-month, 8% note.
(b) On December 31, Lore Company accrued interest (assume adjusting entries are only made at the end of the year).
Chapter 13 Solutions
Intermediate Accounting (2nd Edition)
Ch. 13 - Prob. 13.1QCh. 13 - Prob. 13.2QCh. 13 - Prob. 13.3QCh. 13 - Do sellers recognize sales taxes as expenses on...Ch. 13 - Prob. 13.5QCh. 13 - Prob. 13.6QCh. 13 - Prob. 13.7QCh. 13 - What is a gam contingency? Is It accrued and...Ch. 13 - Do firms always accrue and record loss...Ch. 13 - Prob. 13.10Q
Ch. 13 - Prob. 13.11QCh. 13 - Prob. 13.12QCh. 13 - Prob. 13.13QCh. 13 - Prob. 13.14QCh. 13 - Prob. 13.15QCh. 13 - Prob. 13.16QCh. 13 - Prob. 13.1MCCh. 13 - Prob. 13.2MCCh. 13 - Prob. 13.3MCCh. 13 - Medical Services Inc allows employees at the end...Ch. 13 - Trade Notes Payables. On February 1, Seville...Ch. 13 - Unearned Revenues. On June 1 of the current year,...Ch. 13 - Unearned Revenues. GoSnow Inc. provides snow...Ch. 13 - Prob. 13.4BECh. 13 - Prob. 13.5BECh. 13 - Prob. 13.6BECh. 13 - Sales Taxes Payable. Kloth Fabric Store operates...Ch. 13 - Prob. 13.8BECh. 13 - Prob. 13.9BECh. 13 - Prob. 13.10BECh. 13 - Asset Retirement Obligation at Acquisition. On...Ch. 13 - Prob. 13.12BECh. 13 - Asset Retirement Obligation, Disposal. Buckner...Ch. 13 - Prob. 13.14BECh. 13 - Prob. 13.15BECh. 13 - Prob. 13.16BECh. 13 - Prob. 13.17BECh. 13 - Warranty Liability, Assurance-Type Warranty,...Ch. 13 - Prob. 13.19BECh. 13 - Prob. 13.20BECh. 13 - Trade Notes Payable. On November 1, Barcelona...Ch. 13 - Unearned Revenues. On May 1 of the current year,...Ch. 13 - Gift Cards. Diamond Depot sold 57,000 of gift...Ch. 13 - Sales Taxes Payable. Eaton Technology operates...Ch. 13 - Prob. 13.5ECh. 13 - Asset Retirement Obligation. On January 1,...Ch. 13 - Prob. 13.7ECh. 13 - Prob. 13.8ECh. 13 - Prob. 13.9ECh. 13 - Prob. 13.10ECh. 13 - Prob. 13.11ECh. 13 - Accounting for Premiums. Supergreen Grocers, Inc....Ch. 13 - Prob. 13.13ECh. 13 - Payroll Taxes Payable, Pay Exceeds. Wage Base....Ch. 13 - Current Operating Liabilities. James Stores, Inc....Ch. 13 - Prob. 13.2PCh. 13 - Prob. 13.3PCh. 13 - Prob. 13.4PCh. 13 - Prob. 13.5PCh. 13 - Prob. 13.6PCh. 13 - Prob. 13.7PCh. 13 - Payroll Taxes Payable. Jackson Corporation employs...Ch. 13 - Prob. 1JCCh. 13 - Prob. 2JCCh. 13 - Prob. 3JCCh. 13 - Financial Statement Analysis Case You are...Ch. 13 - Surfing the Standards Case 1: Environmental...Ch. 13 - Prob. 2SSCCh. 13 - Prob. 1BCC
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- Concord Ltd. manufactures a line of amplifiers that carry a three-year warranty against defects. Based on experience, the estimated warranty costs related to dollar sales are as follows: first year after sale-2% of sales; second year after sale-4% of sales; and third year after sale-5% of sales. Sales and actual warranty expenditures for the first three years of business were: Sales Warranty Expenditures 2021 $750,000 $ 15,900 2022 1,010,000 46, 000 2023 1,017, 000 80,000 (a) Calculate the amount that Concord should report as warranty expense on its 2023 income statement and as a warranty liability on its December 31, 2023 SFP using the assurance - type warranty (expense - based approach). Assume that all sales are made evenly throughout each year and that warranty expenditures are also evenly spaced according to the rates above. Warranty expense Warranty liabilityarrow_forwardDuring Year 3, the Seahawks Inc. sold 150 dune buggies for $4,000 each. The dune buggies carry a five-year warranty for defects. Estimates are that repair costs will average 4% of the total selling price. The warranty liability at the beginning of the year was $14,000, and $20,000 in claims was actually incurred during Year 3 to honour warranties. Refer to Seahawks Inc. What is the balance in the warranty liability at the end of the Year 2? O $24,000 O $18,000 $14,000 O $38,000arrow_forwardAviation Systems sells its products with a three-year manufacturing warranty. The company's sales revenue is $600,000. Based on prior experience, the company estimates that warranty costs are 5% of sales revenue. Actual warranty costs related to these sales were $5,000 during the year. How much is the estimated warranty liability reported in the balance sheet this year? Multiple Choice $25,000. $30,000. $10,000. $5,000, >arrow_forward
- Calla Corp. sells equipment that comes with a two-year unlimited warranty on parts and labour for repairs. All sales are cash sales. The warranty is intended to assure customers that the appliances will operate as advertised. The warranty is expected to cost 2% of sales in the first year and 4% of sales in the second year, for a total of 6%. The provision for warranty has a credit balance of $189,000 at the beginning of 20X5. The following events and decisions relate to the warranty: 20X5 Sales revenue of $4,650,000 was generated from products covered by the warranty. Both the sale and the warranty provision must be recorded. 20X5 Warranty work consumed parts inventory with a cost of $8,300, and labour of $33,000. Labour costs were paid in cash. 20X6 Sales revenue from products covered by the warranty were $6,650,000. Both the sale and the warranty provision must be recorded. 20X6 Warranty work…arrow_forwardA company manufactures electronic equipment and offers a one-year warranty with each unit sold. For the year, the company sold 25,000 units. Based on historical averages, management expects 4% of the units sold will need warranty work. The estimated warranty cost per unit is $100.Required:Estimate (a) the number of units that will need warranty work and (b) future warranty costs. (c) Prepare the year-end adjusting entry for estimated warranty costs, assuming none of the units sold in the current year required warranty work. (d) Alternatively, prepare the year-end adjusting entry for estimated warranty costs, assuming that 25% of the estimated warranty work has already occurred by the end of the current year. How would your answers change if management’s estimate of warranty work increases to 5% of units sold and the estimated warranty cost per unit increases to $120?arrow_forwardConsumer Corp. sells dishwashers and washing machines that come with a two-year unlimited warranty on parts and labour for repairs. The warranty is intended to assure customers that the appliances will operate as advertised. The warranty is expected to cost 4% of sales in the first year and 6% of sales in the second year, for a total of 10%. The provision for warranty has a credit balance of $161,000 at the beginning of 20X5. The following events and decisions relate to the warranty: 20X5 Sales revenue of $4,750,000 was generated from products covered by the warranty. Both the sale and the warranty provision must be recorded. 20X5 Warranty work consumed parts inventory with a cost of $8,500, and labour of $35,000. 20X6 Sales revenue from products covered by the warranty were $6,750,000. Both the sale and the warranty provision must be recorded. 20X6 Sales revenue of $6,750,000 was generated from products covered by the warranty. Warranty work…arrow_forward
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