5. Al Jabel Corporation sells WIFIspeakers and offers 2-yearwarranty contract to customers.During 2020 AI Jabel sold 15,000warranty contract at $99 each. AlJabel spent $ 135,000 servingwarranties during 2020, and itestimates that an additional$675,000 will be spent in the futureto service the warranties. Preparejournal entries for:(a) The sale of contract(b) The cost of servicing warranties(c) The recognition of warrantiesrevenue

Journal entries refers to the process of recording the financial transactions of a company in its…

Answered: Al Jabel Corporation sells WIFI…

Al Jabel Corporation sells WIFI speakers and offers 2-year warranty contract to customers. During 2020 AI Jabel sold 15,000 warranty contract at $99 each. Al

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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In 2025, Oriole Corporation began selling a new line of products that carry a two-year warranty against defects. Based upon experience with other products, the estimated warranty costs as a percentage of sales revenue are as follows: First year of warranty. 3% Second year of warranty 5% Sales revenue and actual warranty expenditures for 2025 and 2026 are presented below: Sales revenue Actual warranty expenditures) 2025 $755000 42000 2026 $1051000 72000 What is the estimated warranty liability at the end of 2026? (assume the accrual method)
Munster sells a product with a four-year warranty. Warranty costs are estimated as a percentage of sales as follows: Year of sale 1% Year after sale 1% Two years after sale 1% Three years after sale 4% Additional data: Year Warranty Sales Expenditures 2019 $50,000 $600 2020 60,000 800 2021 40,000 900 2022 70,000 2,500 If this is an assurance-type warranty and the company uses the modified cash method, what would be warranty expense for 2021? If this is an assurance-type warranty and and the company uses the GAAP approach of accruing warranty expense (and the related liability) in the year of the sale, what would be warranty expense for 2021? If the company considers that 7% of the selling price of the product represents payment for an implied service-type warranty, what amount of unearned warranty revenue would be disclosed on the balance sheet on December 31, 2022?
Chips Co. sells televisions at an average price of P 7,500 and also offers to each customer a separate 3-year warranty contract for P 750 that requires the company to perform periodic services and to replace defective parts. During 2021, the company sold 300 televisions and 270 warranty costs of P 200 for parts and P 400 for labor and accounts for warranties separately. Assume sales occurred on Dec. 31, 2021, income is recognized on the warranties, and straight line recognition of warranty revenues occcurs. What amount of current and non- current liability relative to warranty revenue would appear on the Dec. 31, 2021 statement of financial position, respectively?
On December 31, 2022, Delta Company sells equipment to Tchefunkte Inc. for $125,000. Delta includes a 1-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2022. Delta estimates the prices to be $122,000 for the equipment and $3,000 for the cost of the warranty. In addition to the assurance warranty, Delta sold an extended warranty for an additional 2 years for $3,000. How much warranty revenue should Delta recognize in 2022?
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LP Corporations sells smart televisions. The corporation also offers its customers a 2 year warranty contract. During 2019, LP sold 20,000 warranty contracts at P990 each. The corporation spent P1, 800,000 servicing warranties during 2019 and it estimates that an additional P9,000,000 will be spent in the future to service the warranties. Prepare LP Corporation’s journal entries for (a) the sale of contracts (b) the cost of servicing warranties and (c) the recognition of warranty revenue.
Moon Co. sells food blenders. During 2019, Moon made 37,000 blenders at an average cost of $80. It sold out 25,000 food blenders at an average price of $130. Moon provides a 2-year warranty for each blender sold and estimates 9% of blenders will be returned for warranty with an estimated cost of $36 each. By the end of 2019, Moon has spent $44,000 servicing the warranty repairs. All the above transactions have been settled in cash. During 2019, Moon has 50 employees who work 5-day per week and get paid each other Friday. Salaries of $324,000 and payroll expense of $37,000 have been paid until December 22. Since the business grows quickly, Moon needs cash to expand. By the end of 2018, the Board of Directors authorized the management to issue 10-year bonds with a par value of $3,000,000, annual contract interest rate of 8% and semi-annual interest payments. Moon chose to use the straight-line method to amortize discount or premium on its bonds. On January 1, 2019, management issued…
ABC Company provides extended service contracts on equipment sold through major retailers. The standard contract is for three years. During 2021, ABC Company provided 2,000 such warranty contracts at an average price of P810 each. Related to these contracts, the company spent P200,000 servicing the contracts during the current year and expects to spend P600,00 more in the future. The net profit for 2021 related to the extended service contract is?
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Patterson Limited offers a 12-month warranty for the sale of used motorbikes. On 1 April 2021, the beginning of the financial year, there was a credit balance of $280,000 in its Warranty Provision account. During the year ended 31 March 2022, Patterson Limited incurred $260,000 in warranty costs for spare parts. At 31 March 2022, Patterson Limited estimated its liability for unexpired warranty contracts as $300,000. Prepare the necessary general journal entry to record the warranty claims, assuming an annual accounting period.
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
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?