Consumer 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 consumed parts inventory with a cost of $135,000, and labour of $295,000 20X6 Year-end review indicated that the percentage used as an estimate for warranty work in 20X5 and 20X6 should have been a total of 12% of sales, rather than 10%. 20X6 Because of a specific prevalent defect to a seal discovered during repairs in 20X6, the company announced that it would cover repairs for this specific defect for a third year for all sales of product made in 20X5 and 20X6. The cost of this work was estimated to be 1% of sales. This is in excess of the percentage increase described above. Products were re-engineered to eliminate the defect starting in 20X7. Required: 1. Prepare journal entries for the events listed above. Because of uncertainty of estimates, no discounting is to be applied. Assume all sales are in cash. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 2. Calculate the balance of the provision for warranty at 31 December 20X5 and 20X6.

Consumer 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 consumed parts inventory with a cost of $135,000, and labour of $295,000 20X6 Year-end review indicated that the percentage used as an estimate for warranty work in 20X5 and 20X6 should have been a total of 12% of sales, rather than 10%. 20X6 Because of a specific prevalent defect to a seal discovered during repairs in 20X6, the company announced that it would cover repairs for this specific defect for a third year for all sales of product made in 20X5 and 20X6. The cost of this work was estimated to be 1% of sales. This is in excess of the percentage increase described above. Products were re-engineered to eliminate the defect starting in 20X7. Required: 1. Prepare journal entries for the events listed above. Because of uncertainty of estimates, no discounting is to be applied. Assume all sales are in cash. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 2. Calculate the balance of the provision for warranty at 31 December 20X5 and 20X6.

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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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 consumed parts inventory with a cost of $135,000, and labour of $295,000

20X6		Year-end review indicated that the percentage used as an estimate for warranty work in 20X5 and 20X6 should have been a total of 12% of sales, rather than 10%.

20X6		Because of a specific prevalent defect to a seal discovered during repairs in 20X6, the company announced that it would cover repairs for this specific defect for a third year for all sales of product made in 20X5 and 20X6. The cost of this work was estimated to be 1% of sales. This is in excess of the percentage increase described above. Products were re-engineered to eliminate the defect starting in 20X7.

Required:
1. Prepare journal entries for the events listed above. Because of uncertainty of estimates, no discounting is to be applied. Assume all sales are in cash. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Calculate the balance of the provision for warranty at 31 December 20X5 and 20X6.

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