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Required: 1. Does this situation represent a loss contingency? 2. Prepare journal entries that summarize sales of the awnings (assume all credi sales) and any aspects of the warranty that should be recorded during 2021. 3. What amount should Cupola report as a liability at December 31, 2021?

Required: 1. Does this situation represent a loss contingency? 2. Prepare journal entries that summarize sales of the awnings (assume all credi sales) and any aspects of the warranty that should be recorded during 2021. 3. What amount should Cupola report as a liability at December 31, 2021?

FINANCIAL ACCOUNTING
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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**Cupola Awning Corporation Warranty Analysis** Cupola Awning Corporation introduced a new line of commercial awnings in 2021, which includes a two-year warranty against manufacturer’s defects. Drawing from previous product introductions, the company estimates warranty costs to be approximately 1% of sales. For the first year, the sales and actual warranty expenditures were as follows: | **Sales** | **Actual Warranty Expenditures** | |--------------------|---------------------------------| | $5,900,000 | $37,750 | **Required:** 1. **Does this situation represent a loss contingency?** 2. **Prepare journal entries that summarize the sales of the awnings (assuming all sales are on credit) and any aspects of the warranty that should be recorded during 2021.** 3. **What amount should Cupola report as a liability at December 31, 2021?** Complete this question by entering your answers in the tabs below. --- This detailed explanation guides understanding the warranty accounting for educational purposes. Ensure to analyze each aspect accurately to comprehend potential impacts on financial statements.
Transcribed Image Text:**Cupola Awning Corporation Warranty Analysis** Cupola Awning Corporation introduced a new line of commercial awnings in 2021, which includes a two-year warranty against manufacturer’s defects. Drawing from previous product introductions, the company estimates warranty costs to be approximately 1% of sales. For the first year, the sales and actual warranty expenditures were as follows: | **Sales** | **Actual Warranty Expenditures** | |--------------------|---------------------------------| | $5,900,000 | $37,750 | **Required:** 1. **Does this situation represent a loss contingency?** 2. **Prepare journal entries that summarize the sales of the awnings (assuming all sales are on credit) and any aspects of the warranty that should be recorded during 2021.** 3. **What amount should Cupola report as a liability at December 31, 2021?** Complete this question by entering your answers in the tabs below. --- This detailed explanation guides understanding the warranty accounting for educational purposes. Ensure to analyze each aspect accurately to comprehend potential impacts on financial statements.
### Journal Entries for Interstate Farm Equipment Company - December 2021 The following selected transactions pertain to the liabilities of Interstate Farm Equipment Company for December 2021. Interstate’s fiscal year ends on December 31. #### Required: Prepare the appropriate journal entries for these transactions. 1. **December 15**: Received $15,500 from Bradley Farms as a down payment for the sale by Interstate of a $201,500 tractor, to be delivered to Bradley on January 6, 2022. 2. **During December**: Received $42,500 for refundable deposits relating to containers used to transport equipment parts. 3. **During December**: Credit sales totaled $860,000. The state sales tax rate is 5%, and the local sales tax rate is 2%. This entry summarizes many individual sales transactions for the period. - *(Note: For all requirements, if no entry is needed for a transaction/event, select "No journal entry required" in the first account field.)* --- There are no graphs or diagrams on the page. The content includes instructions to view more details under "View transaction list" and make entries in a "Journal entry worksheet."
Transcribed Image Text:### Journal Entries for Interstate Farm Equipment Company - December 2021 The following selected transactions pertain to the liabilities of Interstate Farm Equipment Company for December 2021. Interstate’s fiscal year ends on December 31. #### Required: Prepare the appropriate journal entries for these transactions. 1. **December 15**: Received $15,500 from Bradley Farms as a down payment for the sale by Interstate of a $201,500 tractor, to be delivered to Bradley on January 6, 2022. 2. **During December**: Received $42,500 for refundable deposits relating to containers used to transport equipment parts. 3. **During December**: Credit sales totaled $860,000. The state sales tax rate is 5%, and the local sales tax rate is 2%. This entry summarizes many individual sales transactions for the period. - *(Note: For all requirements, if no entry is needed for a transaction/event, select "No journal entry required" in the first account field.)* --- There are no graphs or diagrams on the page. The content includes instructions to view more details under "View transaction list" and make entries in a "Journal entry worksheet."
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