During December, Vixen Company sells $870,000 in merchandise that has a one-year warranty. Warranty expense is estimated at 3% of sales. On January 5 of the following year, the merchandise requires repairs that are completed the same day. The repairs cost $16,000 for materials taken from parts inventory. The entry to record the estimated warranty liability at the end of December is:
During December, Vixen Company sells $870,000 in merchandise that has a one-year warranty. Warranty expense is estimated at 3% of sales. On January 5 of the following year, the merchandise requires repairs that are completed the same day. The repairs cost $16,000 for materials taken from parts inventory. The entry to record the estimated warranty liability at the end of December is:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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During December, Vixen Company sells $870,000 in merchandise that has a one-year warranty. Warranty expense is estimated at 3% of sales. On January 5 of the following year, the merchandise requires repairs that are completed the same day. The repairs cost $16,000 for materials taken from parts inventory. The entry to record the estimated warranty liability at the end of December is:
Expert Solution
Step 1
Estimated warranty liability represents the amount that is estimated to be the cost of repairing an item or replacing it. It is recorded in the year of sales itself.
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