Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Ardens Used Cars offers a one-year warranty from the date of sale on all cars. From historical data, Mr. Arden estimates that, on average, each
Ardens Used Cars offers a one-year warranty from the date of sale on all cars. From historical data, Mr. Arden estimates that, on average, each car will require the company to incur warranty costs of $760. The following activities occurred during 2014:
- February 2 Sold five cars
- March 23 Sold ten cars
- May 30 Incurred warranty costs of $3,000 in four cars sold in 2013
- July 5 Sold eight cars
- September 28 Incurred warranty costs of $5,000 on five cars sold in 2014
- November 15 Incurred warranty costs of $6,000 on one car sold in 2014
- December 20 Sold twelve cars
- Assume that the cars were sold for cash $9,500 each. Show journal entries to record the sales.
- Prepare the individual entries to record the actual warranty costs incurred. Assume that warranty costs are paid in cash.
- Arden accrues its warranty expense with a single adjusting entry at year-end. Prepare that entry.
- The beginning balance in the contingent warranty liability account was $3,500. Show the warranty liability T-account, and compute the ending balance in the account.
- Explain why accountants estimate the warranty expense in the year of sale instead of recording the expenses as the costs are actually incurred? Specifically, which two accounting principles is this treatment based on?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started