Rotary Tools sells power tools and backs each product it sells with a one-year warranty against defects. Based on previous experience, the company expects warranty costs to be approximately 6% of sales. By the end of the first year, sales are $700,000. Actual warranty expenses incurred so far are $12,000. 1. Does this situation represent a contingent liability? Yes No 2. & 3. Record the appropriate journal entries for the warranties. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.) Record warranty expense and warranty liability for the year based on 6% of sales.
Rotary Tools sells power tools and backs each product it sells with a one-year warranty against defects. Based on previous experience, the company expects warranty costs to be approximately 6% of sales. By the end of the first year, sales are $700,000. Actual warranty expenses incurred so far are $12,000. 1. Does this situation represent a contingent liability? Yes No 2. & 3. Record the appropriate journal entries for the warranties. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.) Record warranty expense and warranty liability for the year based on 6% of sales.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Rotary Tools sells power tools and backs each product it sells with a one-year warranty against defects. Based on previous experience, the company expects warranty costs to be approximately 6% of sales. By the end of the first year, sales are $700,000. Actual warranty expenses incurred so far are $12,000.
1. Does this situation represent a
-
Yes
- No
2. & 3. Record the appropriate journal entries for the warranties. (If no entry is required for a particular transaction/event, select "No
Journal Entry Required" in the first account field.)- Record warranty expense and warranty liability for the year based on 6% of sales.
Transaction General Journal Debit Credit 1 -
- Record the actual warranty expenditures of $12,000 incurred so far.
Transaction General Journal Debit Credit 2 4. What is the balance in the Warranty Liability account after the entries in parts 2 and 3?
Warranty liability-
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