Journal entries in the Ledger: The business runs with the transactions it makes. Every transaction results in some outcome like the creation of asset, liability, income, loss, gain or expense. The transactions are recorded on the basis of the resulted outcome. The debits and the credits are made on the basis of the rules of the accounting. Warranty Expense and Estimated Warranty Payable: Warranty Expense refers to the cost which a business expects to incur or has already incurred for the repair or replacement of the goods sold. Warranty Expense is calculated by using the following formula – W a r r a n t y E x p e n s e = S a l e s X E s t i m a t e d w a r r a n t y p a y a b l e ( r a t e o f s a l e s ) Requirement 1 To prepare: Journal entries of the given transactions in Percy Bowes’s general journal.

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Answer 1

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Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 11, Problem P11.33BPGB

To determine

Concept Introduction:

Journal entries in the Ledger:

The business runs with the transactions it makes. Every transaction results in some outcome like the creation of asset, liability, income, loss, gain or expense. The transactions are recorded on the basis of the resulted outcome. The debits and the credits are made on the basis of the rules of the accounting.

Warranty Expense and Estimated Warranty Payable:

Warranty Expense refers to the cost which a business expects to incur or has already incurred for the repair or replacement of the goods sold.

Warranty Expense is calculated by using the following formula –

$W a r r a n t y E x p e n s e = S a l e s X E s t i m a t e d w a r r a n t y p a y a b l e (r a t e o f s a l e s)$

Requirement 1

To prepare:

Journal entries of the given transactions in Percy Bowes’s general journal.

To determine

Requirement 2

The balance of estimated warranty payable on December 31, 2016.

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Recently, Abercrombie & Fitch has been implementing a turnaround strategy since its sales had been falling for the past few years (11% decrease in 2014, 8% in 2015, and just 3% in 2016.) One part of Abercrombie's new strategy has been to abandon its logo-adorned merchandise, replacing it with a subtler look. Abercrombie wrote down $20.6 million of inventory, including logo-adorned merchandise, during the year ending January 30, 2016. Some of this inventory dated back to late 2013. The write-down was net of the amount it would be able to recover selling the inventory at a discount. The write-down is significant; Abercrombie's reported net income after this write-down was $35.6 million. Interestingly, Abercrombie excluded the inventory write-down from its non-GAAP income measures presented to investors; GAAP earnings were also included in the same report. Question: What impact would the write-down of inventory have had on Abercrombie's expenses, Gross margin, and Net income?

Recently, Abercrombie & Fitch has been implementing a turnaround strategy since its sales had been falling for the past few years (11% decrease in 2014, 8% in 2015, and just 3% in 2016.) One part of Abercrombie's new strategy has been to abandon its logo-adorned merchandise, replacing it with a subtler look. Abercrombie wrote down $20.6 million of inventory, including logo-adorned merchandise, during the year ending January 30, 2016. Some of this inventory dated back to late 2013. The write-down was net of the amount it would be able to recover selling the inventory at a discount. The write-down is significant; Abercrombie's reported net income after this write-down was $35.6 million. Interestingly, Abercrombie excluded the inventory write-down from its non-GAAP income measures presented to investors; GAAP earnings were also included in the same report. Question: What impact would the write-down of inventory have had on Abercrombie's assets, Liabilities, and Equity?

Answer 2

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Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 11, Problem P11.33BPGB

To determine

Concept Introduction:

Journal entries in the Ledger:

The business runs with the transactions it makes. Every transaction results in some outcome like the creation of asset, liability, income, loss, gain or expense. The transactions are recorded on the basis of the resulted outcome. The debits and the credits are made on the basis of the rules of the accounting.

Warranty Expense and Estimated Warranty Payable:

Warranty Expense refers to the cost which a business expects to incur or has already incurred for the repair or replacement of the goods sold.

Warranty Expense is calculated by using the following formula –

$W a r r a n t y E x p e n s e = S a l e s X E s t i m a t e d w a r r a n t y p a y a b l e (r a t e o f s a l e s)$

Requirement 1

To prepare:

Journal entries of the given transactions in Percy Bowes’s general journal.

To determine

Requirement 2

The balance of estimated warranty payable on December 31, 2016.

Expert Solution & Answer

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Check out a sample textbook solution

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Answer 3

Question

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 11, Problem P11.33BPGB

To determine

Concept Introduction:

Journal entries in the Ledger:

The business runs with the transactions it makes. Every transaction results in some outcome like the creation of asset, liability, income, loss, gain or expense. The transactions are recorded on the basis of the resulted outcome. The debits and the credits are made on the basis of the rules of the accounting.

Warranty Expense and Estimated Warranty Payable:

Warranty Expense refers to the cost which a business expects to incur or has already incurred for the repair or replacement of the goods sold.

Warranty Expense is calculated by using the following formula –

$W a r r a n t y E x p e n s e = S a l e s X E s t i m a t e d w a r r a n t y p a y a b l e (r a t e o f s a l e s)$

Requirement 1

To prepare:

Journal entries of the given transactions in Percy Bowes’s general journal.

To determine

Requirement 2

The balance of estimated warranty payable on December 31, 2016.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Question

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 11, Problem P11.33BPGB

To determine