During Year 1, Ward Company introduced a new product carrying a two-year warranty against defects, which is included in the selling price of the product. The estimated warranty costs are 2% of sales within thefirst 12 months following the sale and 4% in the second 12 months following the sale. Sales and actual warranty expenditures for the years ended December 31 of Year 1 and Year 2 follow.SalesYear 1 $1,560,000Actual WarrantyExpenditures$23,400Year 2 2,600,00078,000$4,160,000$101,400Requireda. Record the entries in Year 1 to (1) record actual cash warranty costs and (2) accrue for warranties at year-end.DateAccount Namea. Dec. 31 Year 1 Warranty ExpenseDr.Cr.0000Warranty LiabilityDec. 31 Year 1To record actual warranty costs.Warranty Liability00Cash00To accrue for warranty expense.b. At December 31 Year 1, what would Ward report as estimated warranty liability on its balance sheet? $ 0c. Record the entries in Year 2 to (1) record actual cash warranty costs and (2) accrue for warranties at year-end.DateAccount NameDr.Cr.Dec. 31 Year 2 Warranty Expense00Warranty Liability00To record actual warranty costs.Dec. 31 Year 2 Warranty Liability00Cash00To accrue for warranty expense.

The warranty expense is calculated on the basis of previous years' experiences. It is estimated at…

Account Name Required a. Record the entries in Year 1 to (1) record actual cash warranty costs and (2) accrue for warranties at year-end. Date a. Dec. 31 Year 1 Warranty Expense Dr. Cr. 0 0 Warranty Liability 0 0 To record actual warranty costs. Dec. 31 Year 1 Warranty Liability 0 0 Cash 0 0 To accrue for warranty expense. b. At December 31 Year 1, what would Ward report as estimated warranty liability on its balance sheet? $ 0 c. Record the entries in Year 2 to (1) record actual cash warranty costs and (2) accrue for warranties at year-end.

Account Name Required a. Record the entries in Year 1 to (1) record actual cash warranty costs and (2) accrue for warranties at year-end. Date a. Dec. 31 Year 1 Warranty Expense Dr. Cr. 0 0 Warranty Liability 0 0 To record actual warranty costs. Dec. 31 Year 1 Warranty Liability 0 0 Cash 0 0 To accrue for warranty expense. b. At December 31 Year 1, what would Ward report as estimated warranty liability on its balance sheet? $ 0 c. Record the entries in Year 2 to (1) record actual cash warranty costs and (2) accrue for warranties at year-end.

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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