INTERMEDIATE ACCOUNTING-MYLAB W/ETEXT
3rd Edition
ISBN: 9780136946601
Author: GORDON
Publisher: PEARSON
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Chapter 13, Problem 13.3MC
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To identify: The correct option.
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Grouper Ltd. manufactures a line of amplifiers that carry a three-year warranty against defects. Based on experience, the estimated
warranty costs related to dollar sales are as follows: first year after sale-3% of sales; second year after sale-4% of sales; and third
year after sale-5% of sales. Sales and actual warranty expenditures for the first three years of business were:
Sales
Warranty
Expenditures
2021
$870,000
$17,100
2022
1,010,000
48,400
2023
1,041,000
80,000
(a) Calculate the amount that Grouper should report as warranty expense on its 2023 income statement and as a warranty liability on
its December 31, 2023 SFP using the assurance-type warranty (expense-based approach). Assume that all sales are made evenly
throughout each year and that warranty expenditures are also evenly spaced according to the rates above.
Warranty expense
$
Warranty liability
$
During Year 3, the Seahawks Inc. sold 150 dune buggies for $4,000 each. The dune buggies carry a five-year warranty for defects. Estimates are that repair costs will
average 4% of the total selling price. The warranty liability at the beginning of the year was $14,000, and $20,000 in claims was actually incurred during Year 3 to honour
warranties.
Refer to Seahawks Inc. What is the balance in the warranty liability at the end of the Year 2?
O $24,000
O $18,000
$14,000
O $38,000
Concord Ltd. manufactures a line of amplifiers that carry a three-year warranty against defects. Based on
experience, the estimated warranty costs related to dollar sales are as follows: first year after sale-2% of
sales; second year after sale-4% of sales; and third year after sale-5% of sales. Sales and actual warranty
expenditures for the first three years of business were: Sales Warranty Expenditures 2021 $750,000 $
15,900 2022 1,010,000 46, 000 2023 1,017, 000 80,000 (a) Calculate the amount that Concord should
report as warranty expense on its 2023 income statement and as a warranty liability on its December
31, 2023 SFP using the assurance - type warranty (expense - based approach). Assume that all sales are
made evenly throughout each year and that warranty expenditures are also evenly spaced according to the
rates above. Warranty expense Warranty liability
Chapter 13 Solutions
INTERMEDIATE ACCOUNTING-MYLAB W/ETEXT
Ch. 13 - Prob. 13.1QCh. 13 - Prob. 13.2QCh. 13 - Prob. 13.3QCh. 13 - Do sellers recognize sales taxes as expenses on...Ch. 13 - Prob. 13.5QCh. 13 - Prob. 13.6QCh. 13 - Prob. 13.7QCh. 13 - What is a gam contingency? Is It accrued and...Ch. 13 - Do firms always accrue and record loss...Ch. 13 - Prob. 13.10Q
Ch. 13 - Prob. 13.11QCh. 13 - Prob. 13.12QCh. 13 - Prob. 13.13QCh. 13 - Prob. 13.14QCh. 13 - Prob. 13.15QCh. 13 - Prob. 13.16QCh. 13 - Prob. 13.1MCCh. 13 - Prob. 13.2MCCh. 13 - Prob. 13.3MCCh. 13 - Medical Services Inc allows employees at the end...Ch. 13 - Trade Notes Payables. On February 1, Seville...Ch. 13 - Unearned Revenues. On June 1 of the current year,...Ch. 13 - Unearned Revenues. GoSnow Inc. provides snow...Ch. 13 - Prob. 13.4BECh. 13 - Prob. 13.5BECh. 13 - Prob. 13.6BECh. 13 - Sales Taxes Payable. Kloth Fabric Store operates...Ch. 13 - Prob. 13.8BECh. 13 - Prob. 13.9BECh. 13 - Prob. 13.10BECh. 13 - Asset Retirement Obligation at Acquisition. On...Ch. 13 - Prob. 13.12BECh. 13 - Asset Retirement Obligation, Disposal. Buckner...Ch. 13 - Prob. 13.14BECh. 13 - Prob. 13.15BECh. 13 - Prob. 13.16BECh. 13 - Prob. 13.17BECh. 13 - Warranty Liability, Assurance-Type Warranty,...Ch. 13 - Prob. 13.19BECh. 13 - Prob. 13.20BECh. 13 - Trade Notes Payable. On November 1, Barcelona...Ch. 13 - Unearned Revenues. On May 1 of the current year,...Ch. 13 - Gift Cards. Diamond Depot sold 57,000 of gift...Ch. 13 - Sales Taxes Payable. Eaton Technology operates...Ch. 13 - Prob. 13.5ECh. 13 - Asset Retirement Obligation. On January 1,...Ch. 13 - Prob. 13.7ECh. 13 - Prob. 13.8ECh. 13 - Prob. 13.9ECh. 13 - Prob. 13.10ECh. 13 - Prob. 13.11ECh. 13 - Prob. 13.12ECh. 13 - Prob. 13.13ECh. 13 - Payroll Taxes Payable, Pay Exceeds. Wage Base....Ch. 13 - Current Operating Liabilities. James Stores, Inc....Ch. 13 - Prob. 13.2PCh. 13 - Prob. 13.3PCh. 13 - Prob. 13.4PCh. 13 - Prob. 13.5PCh. 13 - Prob. 13.6PCh. 13 - Prob. 13.7PCh. 13 - Payroll Taxes Payable. Jackson Corporation employs...Ch. 13 - Prob. 1JCCh. 13 - Prob. 2JCCh. 13 - Prob. 3JCCh. 13 - Prob. 1FSCCh. 13 - Surfing the Standards Case 1: Environmental...Ch. 13 - Prob. 2SSCCh. 13 - Prob. 1BCC
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- 6) R. Milton Products Inc. generated sales for the current month of 200 units at $225 each, subject to sales tax of 7.5%. All sales are on account. Each unit carries a 6-month warranty. R. Milton Products Inc. promises to repair the unit should it become defective. The estimated cost to the company to honour the warranty is $60 and past experience has shown that approximately 7% of all units will have to be repaired during the warranty period. Prepare journal entries for the following transactions: a. Record sales for the current month including the taxes collected in the revenue account. b. Record the estimated warranty liability associated with the current month's sales. c. Adjust the revenue account for the proper amount of sales tax payable.arrow_forwardBlue Jay, Inc., manufactures and sells computer monitors with a three-year warranty.Warranty costs are expected to average 7% of sales during the warranty period. The followingtable shows the sales and actual warranty payments during the first two years of operations:Year Sales Warranty Payments2018 $650,000 $ 5,8502019 850,000 42,500Based on these facts, what amount of warranty liability should Blue Jay, Inc., report on itsbalance sheet at December 31, 2019?a. $48,350b. $56,650c. $105,000d. $42,500arrow_forwardDuring Year 1, Ward Company introduced a new product carrying a two-year warranty against defects, which is included in the selling price of the product. The estimated warranty costs are 2% of sales within the first 12 months following the sale and 4% in the second 12 months following the sale. Sales and actual warranty expenditures for the years ended December 31 of Year 1 and Year 2 follow. Actual Warranty Sales Expenditures Year 1 $1,200,000 $18,000 Year 2 2,000,000 60,000 $1,600,000 $39,000 Required a. Record the entries in Year 1 to (1) record actual cash warranty costs and (2) accrue for warranties at year-end. Date Account Name Dr. Cr. a. Dec. 31 Year 1 To record actual warranty costs. Dec. 31 Year 1 To accrue for warranty expense. b. At December 31 Year 1, what would Ward report as estimated warranty liability on its balance sheet? $Answer c. Record the entries in Year 2 to (1) record…arrow_forward
- Aviation Systems sells its products with a three-year manufacturing warranty. The company's sales revenue is $600,000. Based on prior experience, the company estimates that warranty costs are 5% of sales revenue. Actual warranty costs related to these sales were $5,000 during the year. How much is the estimated warranty liability reported in the balance sheet this year? Multiple Choice $25,000. $30,000. $10,000. $5,000, >arrow_forwardCalla Corp. sells equipment that comes with a two-year unlimited warranty on parts and labour for repairs. All sales are cash sales. The warranty is intended to assure customers that the appliances will operate as advertised. The warranty is expected to cost 2% of sales in the first year and 4% of sales in the second year, for a total of 6%. The provision for warranty has a credit balance of $189,000 at the beginning of 20X5. The following events and decisions relate to the warranty: 20X5 Sales revenue of $4,650,000 was generated from products covered by the warranty. Both the sale and the warranty provision must be recorded. 20X5 Warranty work consumed parts inventory with a cost of $8,300, and labour of $33,000. Labour costs were paid in cash. 20X6 Sales revenue from products covered by the warranty were $6,650,000. Both the sale and the warranty provision must be recorded. 20X6 Warranty work…arrow_forwardA company manufactures electronic equipment and offers a one-year warranty with each unit sold. For the year, the company sold 25,000 units. Based on historical averages, management expects 4% of the units sold will need warranty work. The estimated warranty cost per unit is $100.Required:Estimate (a) the number of units that will need warranty work and (b) future warranty costs. (c) Prepare the year-end adjusting entry for estimated warranty costs, assuming none of the units sold in the current year required warranty work. (d) Alternatively, prepare the year-end adjusting entry for estimated warranty costs, assuming that 25% of the estimated warranty work has already occurred by the end of the current year. How would your answers change if management’s estimate of warranty work increases to 5% of units sold and the estimated warranty cost per unit increases to $120?arrow_forward
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