Brooks Inc. sells portable computer equipment with a two-year warranty contract that requires the corporation to replace
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Answer parts (a) to (d) based on the information above.
(a) Record the 2017 journal entry, assuming the cash basis is used to account for the warranties.
(b) Record the 2017 journal entries, assuming the accrual basis under the assurance-type approach is used to account for the warranties.
(c) What liability relative to these transactions would appear on the December 31, 2017 balance sheet? How would it be classified if the cash basis is used?
(d) What liability relative to these transactions would appear on the December 31, 2017 balance sheet? How would it be classified if the accrual basis assurance-type approach is used?
Answer parts (e) to (h) assuming that in 2018 the actual warranty costs incurred by Brooks were $21,400 for parts and $39,900 for labour.
(e) Record the necessary entry in 2018, applying the cash basis.
(f) Record the necessary entry in 2018, applying the accrual basis assurance-type approach.
(g) Which method of accounting for warranties would you recommend to Brooks? Why?
(h) Assume that the warranty costs incurred by Brooks in 2019 were substantially higher than estimated. How would Brooks deal with the discrepancy between the estimated warranty liability and the actual warranty expense?
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Related Book For
Intermediate Accounting
ISBN: 978-1119048541
11th Canadian edition Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy
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