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Problem 3-2 (AICPA Adapted) In 2020, Dare Company began selling a new calculator that carried a two-year warranty against defects. The entity projected the estimated warranty cost as a percent of sales. First year of warranty 4% Second year of warranty 10%

Problem 3-2 (AICPA Adapted) In 2020, Dare Company began selling a new calculator that carried a two-year warranty against defects. The entity projected the estimated warranty cost as a percent of sales. First year of warranty 4% Second year of warranty 10%

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Problem 3-2 (AIICPA Adapted) In 2020, Dare Company began selling a new calculator that carried a two-year warranty against defects. The entity projected the estimated warranty cost as a percent of sales. First year of warranty 4% Second year of warranty 10% Sales and actual warranty repairs were: 2020 2021 Sales 5,000,000 9,000,000 Actual warranty repairs 200,000 560,000 Required: 1. Prepare journal entries in connection with the warranty using the "expense as incurred" approach. 2. Prepare journal entries in connection with the warranty using the "accrual" approach. 3. Determine the estimated warranty liability on December 31, 2021. 4. Analyze the estimated warranty liability account to ascertain if adjustment is necessary. The sales and warranty repairs are made evenly during the year. 5. Prepare the adjustment to correct the estimated warranty liability on December 31, 2021.
Transcribed Image Text:Problem 3-2 (AIICPA Adapted) In 2020, Dare Company began selling a new calculator that carried a two-year warranty against defects. The entity projected the estimated warranty cost as a percent of sales. First year of warranty 4% Second year of warranty 10% Sales and actual warranty repairs were: 2020 2021 Sales 5,000,000 9,000,000 Actual warranty repairs 200,000 560,000 Required: 1. Prepare journal entries in connection with the warranty using the "expense as incurred" approach. 2. Prepare journal entries in connection with the warranty using the "accrual" approach. 3. Determine the estimated warranty liability on December 31, 2021. 4. Analyze the estimated warranty liability account to ascertain if adjustment is necessary. The sales and warranty repairs are made evenly during the year. 5. Prepare the adjustment to correct the estimated warranty liability on December 31, 2021.
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