### Educational Content: Warranty Liability Accounting#### Background InformationA company focused on restoring and reselling notebook computers obtains these devices from corporations looking to upgrade their systems. For every notebook sold, the company provides a 90-day warranty against defects. From past experiences, the company estimates that warranty costs will be around 5% of total sales.#### Financial Data- **Sales for December**: $530,000- **Estimated Warranty Costs**: 5% of sales- **Actual Warranty Expenditures (January following year)**: $19,500#### Question**4. What is the balance in the Warranty Liability account after the entries in Part 2 and 3?**The response requires calculating the expected warranty costs and accounting adjustments. Enter the Warranty Liability balance in the provided answer box.![Warranty Liability](input field for calculation)

Warranty liability: It includes the estimated replacement and repairs expense that the company is…

Answered: A company restores and resells notebook…

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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A company restores and resells notebook computers. It originally acquires the notebook computers from corporations upgrading their computer systems, and it backs each notebook it sells with a 90-day warranty against defects. Based on previous experience, the company expects warranty costs to be approximately 5% of sales. Sales for the month of December are $530,000. Actual warranty expenditures in January of the following year were $19,500.
Hardin Widget Manufacturing began operations in January 2019. Hardin sells widgets that carry a two- year manufacturer's warranty against defects in workmanship. Hardin's management projects that 2% of the widgets will require repair during the first year of the warranty while approximately 8% will require repair during the second year of the warranty. The widgets sell for $400 each. The average cost to repair a widget is $50. The company sells 60% of the widgets to retail customers who must pay a 9% sales tax. Sales and warranty information for 2019 and 2020 are as follows: 2019: Sold 200 widgets on account; actual warranty expenditures were $300. 2020: Sold 300 widgets on account; actual warranty expenditures were $500. Required: 1. Prepare journal entries that summarize the sales and any aspects of the warranty for 2019. 2. Prepare journal entries that summarize the sales and any aspects of the warranty for 2020.
Sanaz Corporation sells computers under a 3-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair labor. During 2020, the corporation sells for cash 700 computers at a unit price of $2,000. On the basis of past experience, the3-year warranty costs are estimated to be $130 for parts and $170 for labor per unit.(For simplicity, assume that all sales occurred on December 31, 2020.) The warranty is not sold separately from the computer. Required a. Record any necessary journal entries in 2020.b. What liability relative to these transactions would appear on the December 31, 2020, balance sheet and how would it be classified?c. In 2021, the actual warranty costs to Sanaz Corporation were $30,500 for parts and $45,100 for labor. Record any necessary journal entries in 2021
In 20X1, Stevens Corp. began a new product line of wearable technology that carries a 24-month warranty against manufacturer defects. Based on industry experience, Stevens expects warranty costs to be an amount equal to approximately 9% of total sales dollars. During 20X1, new sales of this technology totaled $3,000,000. The costs incurred to satisfy warranty claims in 20X1 was $90,000. Required: Answer the following two questions. Question #1: What should Stevens report as the "Warranty Expense" balance on its 20X1 income statement?Answer: Question #2: What should Stevens report as the "Warranty Liability" balance on its balance sheet at 12/31/X1?Answer
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EZ Wheels Corporation manufactures kick scooters. The company offers a one-year warranty on all scooters. During the year, the company recorded net sales of $2,850 million. Historically, about 4% of all sales are returned under warranty and the cost of repairing and or replacing goods under warranty is about 30% of retail value. Assume that at the start of the year EZ Wheels’ balance sheet included an accrued warranty liability of $24.5 million and at the end of the year, the accrued warranty liability balance was $18.6 million. How much did EZ Wheels pay during the year to repair and/or replace scooters under warranty? Select one: a. None of these are correct. b. $40.1 million c. $34.2 million d. $114.0 million e. $18.6 million
Catskills guarantees its snowmobiles for three years. Company experience indicates that warranty costs will be approximately 7% of sales. Assume that the Catskills dealer in Colorado Springs made sales totaling $450,000 during 2018. The company received cash for 10% of the sales and notes receivable for the remainder. Warranty payments totaled$12,000 during 2018. Requirements: 1. Record the sales, warranty expense, and warranty payments for the company. Ignore cost of goods sold. 2. Assume the Estimated Warranty Payable is $0 on January 1, 20182018. Post the 2018transactions to the Estimated Warranty Payable T-account. At the end of 2018,how much in Estimated Warranty Payable does the company owe?
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