An electronic goods retailer sells electronic goods with a standard one-year warranty agreement. The retailer is obligated
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Question:
- An electronic goods retailer sells electronic goods with a standard one-year warranty agreement. The retailer is obligated to remedy any product deficiency through repairs or replacements within one year of the sale. During the year ended 30 June 2020, the retailer sold 50,000 units of products. Based on experience, the retailer estimates that 0.10% of its products sold are brought back to the retailer within one year for major repairs or replacements, and 0.40% of its products sold are brought back for minor repairs under the warranty agreement. The remaining 99.50% of products sold are not brought back for any repair or replacement. The retailer further estimates that a major repair and replacement costs $300 and a minor repair costs $50. The retailer reported a warranty provision of $15,000 on the Statement of Financial Position on 30 June 2019 and incurred an expenditure of $8,000 to repair and replace products during the year ended 30 June 2020 under the warranty agreement.
Required
- a. Calculate how much new warranty provision the retailer should create during the year ended 30 June 2020.
- b. Prepare journal entries to record warranty expense and warranty provision during the year ended 30 June 2020. Show all necessary calculations.
- c. Prepare a note showing the reconciliation of warranty provision.
- d. Briefly explain the usefulness of a reconciliation of warranty provision.
Related Book For
Business Statistics a decision making approach
ISBN: 978-0133021844
9th edition
Authors: David F. Groebner, Patrick W. Shannon, Phillip C. Fry
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