Warranty Warranty is assurance provided to a customer by a seller. It is provided against the probable defects that might occur in a product. Warranty for a product is recognized at the time of sale being made. When warranties and guarantees are considered, contingent liability becomes accrued. Here, estimated warranty is a liability and is credited as there is an increase in liability. Warranty expense is debited as there is increase in the expense incurred. There are two types of warranty. They are as follows: 1. Manufacturer’s warranty is the assurance given to buyer from seller at the time of purchase. It is a part of product package. On the other hand, extended warranty is the assurance given beyond the manufacturer’s original warranty. 2. Extended warranty is that warranty that are sold and priced separately. These warranty are identified as separate performance obligation and thus, recorded as a separate sales transaction. To prepare: Memo explaining handling of warranty.

Question

Want to see the full answer?

Answer 1

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 13, Problem 13.12BYP

To determine

Warranty

Warranty is assurance provided to a customer by a seller. It is provided against the probable defects that might occur in a product. Warranty for a product is recognized at the time of sale being made. When warranties and guarantees are considered, contingent liability becomes accrued. Here, estimated warranty is a liability and is credited as there is an increase in liability. Warranty expense is debited as there is increase in the expense incurred. There are two types of warranty. They are as follows:

1. Manufacturer’s warranty is the assurance given to buyer from seller at the time of purchase. It is a part of product package. On the other hand, extended warranty is the assurance given beyond the manufacturer’s original warranty.

2. Extended warranty is that warranty that are sold and priced separately. These warranty are identified as separate performance obligation and thus, recorded as a separate sales transaction.

To prepare: Memo explaining handling of warranty.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

9 A B C D E 4 Ramsey Miller Style, Inc. manufactures a product which requires 15 pounds of direct materials at a cost of $8 5 per pound and 5.0 direct labor hours at a rate of $17 per hour. Variable overhead is budgeted at a rate of $3 per direct labor hour. Budgeted fixed overhead is $433,000 per month. The company's policy is to end each month with direct materials inventory equal to 45% of the next month's direct materials requirement, and finished 7 goods inventory equal to 60% of next month's sales. August sales were 13,400 units, and marketing expects 8 sales to increase by 500 units in each of the upcoming three months. At the end of August, the company had 9 95,850 pounds of direct materials in inventory, and 8,340 units in finished goods inventory. 10 11 August sales 12 Expected increase in monthly sales 13 Desired ending finished goods (units) 14 Selling price per unit 15 Direct materials per unit 16 Direct materials cost 17 Direct labor hours (DLHS) per unit 18 Direct labor…

Sherrod, Incorporated, reported pretax accounting income of $84 million for 2024. The following information relates to differences between pretax accounting income and taxable income: a. Income from installment sales of properties included in pretax accounting income in 2024 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end 2024 had a balance of $4 million (representing portions of 2023 and 2024 installment sales), expected to be collected equally in 2025 and 2026. b. Sherrod was assessed a penalty of $4 million by the Environmental Protection Agency for violation of a federal law in 2024. The fine is to be paid in equal amounts in 2024 and 2025. c. Sherrod rents its operating facilities but owns one asset acquired in 2023 at a cost of $88 million. Depreciation is reported by the straight-line method, assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight- line depreciation the…

Provide answer

Answer 2

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 13, Problem 13.12BYP

To determine

Warranty

Warranty is assurance provided to a customer by a seller. It is provided against the probable defects that might occur in a product. Warranty for a product is recognized at the time of sale being made. When warranties and guarantees are considered, contingent liability becomes accrued. Here, estimated warranty is a liability and is credited as there is an increase in liability. Warranty expense is debited as there is increase in the expense incurred. There are two types of warranty. They are as follows:

1. Manufacturer’s warranty is the assurance given to buyer from seller at the time of purchase. It is a part of product package. On the other hand, extended warranty is the assurance given beyond the manufacturer’s original warranty.

2. Extended warranty is that warranty that are sold and priced separately. These warranty are identified as separate performance obligation and thus, recorded as a separate sales transaction.

To prepare: Memo explaining handling of warranty.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

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 13, Problem 13.12BYP

To determine

Warranty

Warranty is assurance provided to a customer by a seller. It is provided against the probable defects that might occur in a product. Warranty for a product is recognized at the time of sale being made. When warranties and guarantees are considered, contingent liability becomes accrued. Here, estimated warranty is a liability and is credited as there is an increase in liability. Warranty expense is debited as there is increase in the expense incurred. There are two types of warranty. They are as follows:

1. Manufacturer’s warranty is the assurance given to buyer from seller at the time of purchase. It is a part of product package. On the other hand, extended warranty is the assurance given beyond the manufacturer’s original warranty.

2. Extended warranty is that warranty that are sold and priced separately. These warranty are identified as separate performance obligation and thus, recorded as a separate sales transaction.

To prepare: Memo explaining handling of warranty.

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 13, Problem 13.12BYP

To determine