Headland Company must make computations and adjusting entries for the following independent situations at December 31, 2026. 1. Its line of amplifiers carries a 3-year warranty against defects. On the basis of past experience, the estimated warranty costs related to dollar sales are first year after sale-2% of sales revenue; second year after sale-3% of sales revenue; and third year after sale-5% of sales revenue. Sales and actual warranty expenditures for the first 3 years of business were: 2024 2025 2026 Sales Revenue $ 839,200 1,098,000 1,268,000 Warranty Expenditures $ 6,680 16,630 68,030 Compute the amount that Headland should report as a liability in its December 31, 2026, balance sheet. Assume that all sales are made evenly throughout each year with warranty expenses also evenly spaced relative to the rates above. Liability that should be reported on December 31, 2026 $ 2. With some of its products, Headland includes coupons that are redeemable in merchandise. The coupons have no expiration date and, in the company's experience, 60% of them are redeemed. The liability for unredeemed coupons at December 31, 2025, was $8,750. During 2026, coupons worth $42,120 were issued, and merchandise worth $7,550 was distributed in exchange for coupons redeemed. Compute the amount of the liability that should appear on the December 31, 2025, balance sheet. Liability that should be reported on December 31, 2026 $
Headland Company must make computations and adjusting entries for the following independent situations at December 31, 2026. 1. Its line of amplifiers carries a 3-year warranty against defects. On the basis of past experience, the estimated warranty costs related to dollar sales are first year after sale-2% of sales revenue; second year after sale-3% of sales revenue; and third year after sale-5% of sales revenue. Sales and actual warranty expenditures for the first 3 years of business were: 2024 2025 2026 Sales Revenue $ 839,200 1,098,000 1,268,000 Warranty Expenditures $ 6,680 16,630 68,030 Compute the amount that Headland should report as a liability in its December 31, 2026, balance sheet. Assume that all sales are made evenly throughout each year with warranty expenses also evenly spaced relative to the rates above. Liability that should be reported on December 31, 2026 $ 2. With some of its products, Headland includes coupons that are redeemable in merchandise. The coupons have no expiration date and, in the company's experience, 60% of them are redeemed. The liability for unredeemed coupons at December 31, 2025, was $8,750. During 2026, coupons worth $42,120 were issued, and merchandise worth $7,550 was distributed in exchange for coupons redeemed. Compute the amount of the liability that should appear on the December 31, 2025, balance sheet. Liability that should be reported on December 31, 2026 $
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter22: Accounting For Changes And Errors.
Section: Chapter Questions
Problem 10E
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Transcribed Image Text:Headland Company must make computations and adjusting entries for the following independent situations at December 31, 2026.
1. Its line of amplifiers carries a 3-year warranty against defects. On the basis of past experience, the estimated warranty costs related
to dollar sales are first year after sale-2% of sales revenue; second year after sale-3% of sales revenue; and third year after sale-5%
of sales revenue. Sales and actual warranty expenditures for the first 3 years of business were:
2024
2025
2026
Sales
Revenue
$ 839,200
1,098,000
1,268,000
Warranty
Expenditures
$ 6,680
16,630
68,030
Compute the amount that Headland should report as a liability in its December 31, 2026, balance sheet. Assume that all sales are
made evenly throughout each year with warranty expenses also evenly spaced relative to the rates above.
Liability that should be reported on December 31, 2026 $
2. With some of its products, Headland includes coupons that are redeemable in merchandise. The coupons have no expiration date
and, in the company's experience, 60% of them are redeemed. The liability for unredeemed coupons at December 31, 2025, was
$8,750. During 2026, coupons worth $42,120 were issued, and merchandise worth $7,550 was distributed in exchange for coupons
redeemed.
Compute the amount of the liability that should appear on the December 31, 2025, balance sheet.
Liability that should be reported on December 31, 2026 $
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