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 $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:### Headland Company: Adjusting Entries for December 31, 2026
Headland Company must compute and adjust entries based on the following situations as of December 31, 2026:
#### 1. Warranty Liability for Amplifiers
Headland's amplifiers carry a 3-year warranty against defects. Based on past data, warranty costs are estimated as follows:
- 2% of sales revenue in the first year after sale
- 3% of sales revenue in the second year after sale
- 5% of sales revenue in the third year after sale
Below is a table showing the sales revenue and actual warranty expenditures for the first three years:
| Year | Sales Revenue | Warranty Expenditures |
|-------|---------------|-----------------------|
| 2024 | $839,200 | $6,680 |
| 2025 | $1,098,000 | $16,630 |
| 2026 | $1,268,000 | $68,030 |
**Task:** Compute the liability Headland should report for warranties on its December 31, 2026, balance sheet. Assume that sales and warranty expenses are evenly spaced based on the rates mentioned.
**Liability to be reported on December 31, 2026:** $ _______
#### 2. Liability for Coupon Redemption
Headland issues coupons with certain products that are redeemable for merchandise. These coupons have no expiration date, and historically, 60% of them are redeemed. On December 31, 2025, the liability for unredeemed coupons was $8,750. In 2026, additional coupons worth $42,120 were issued, and merchandise valued at $7,550 was exchanged for redeemed coupons.
**Task:** Compute the liability for coupons that should appear on the balance sheet for December 31, 2026.
**Liability to be reported on December 31, 2026:** $ _______
Expert Solution
Step 1: Define liability
Liability might indicate that an individual owe someone money or services, but it also frequently indicates that the person is accountable for something. Liabilities can expedite value growth and assist a corporation in establishing successful operations. Liabilities have an impact on a company's capital structure and liquidity as well.
Step by step
Solved in 4 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education