5. Warranties. In the calendar year 2020, Golden Enterprises sold 4,000 units its product for P10,000 each. The selling price included a one-year warranty on parts. It is expected that 3% of the units would be defective and that repair costs would average P1,500 per unit. In 2020, warranty contracts were honoured on 80 units of product for a total cost of P120,000. The Provision for Warranty account had a balance of P120,000 at January 1, 2020. What amount should Golden accrue on December 31, 2020 for estimated warranty costs?

5. Warranties. In the calendar year 2020, Golden Enterprises sold 4,000 units its product for P10,000 each. The selling price included a one-year warranty on parts. It is expected that 3% of the units would be defective and that repair costs would average P1,500 per unit. In 2020, warranty contracts were honoured on 80 units of product for a total cost of P120,000. The Provision for Warranty account had a balance of P120,000 at January 1, 2020. What amount should Golden accrue on December 31, 2020 for estimated warranty costs?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Lindy Appliance begins operations in 2021 and offers a one-year warranty on all products sold. Total appliance sales in 2021 are $1,600,000, and Lindy estimates future warranty costs in 2022 to be 2% of current sales. Actual warranty costs in 2022 are $25,000. Also in 2022, Lindy has additional sales of $2,400,000 and revises its estimate of warranty costs associated with sales in 2022 to be 1.5%.Required:1. Record the adjusting entry for estimated warranty costs at the end of 2021.2. Record the summary entry for actual warranty expenditures in 2022, assuming all costs were paid in cash.3. Record the adjusting entry for estimated warranty costs at the end of 2022.4. What is the balance in Warranty Liability at the end of 2021 and 2022?
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Cupola Awning Corporation introduced a new line of commercial awnings in 2024 that carry a two-year warranty against manufacturer’s defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 3% of sales. Sales and actual warranty expenditures for the first year of selling the product were: Sales Actual Warranty Expenditures $ 5,000,000 $ 37,500 Required: Does this situation represent a loss contingency? Prepare journal entries that summarize sales of the awnings (assume all credit sales) and any aspects of the warranty that should be recorded during 2024. What amount should Cupola report as a liability at December 31, 2024?
Early in 2020, Swifty Equipment Company sold 600 Rollomatics at $5,700 each. During 2020, Swifty spent $20,000 servicing the 2- year assurance warranties that accompany the Rollomatic. All sales transactions are on a cash basis. (a) Prepare 2020 entries for Swifty. Assume that Swifty estimates the total cost of servicing the warranties in the second year will be $37,000. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit List of Accounts
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