Question
Bakem Enterprises manufactures and sells Ovens. Bakem provides all customers with a two-year warranty guaranteeing to repair, free of charge, any defects reported during this
Bakem Enterprises manufactures and sells Ovens. Bakem provides all customers with a two-year warranty guaranteeing to repair, free of charge, any defects reported during this time period. During the year, it sold 100,000 Ovens for $270 each. Analysis of past warranty records indicates that 12% of all sales will be returned for repair within the warranty period. Bakem expects to incur expenditures of $9 to repair each Oven. The account Estimated Liability for Warranties had a balance of $120,000 on January 1. Bakem incurred $165,000 in actual expenditures during the year. Required: Identify and analyze the effect of the events related to the warranty transactions during the year. The effect of recording the sales transaction: Activity Accounts Statement(s) How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues Expenses = Net Income The effect of recording estimated warranty cost: Activity Accounts Statement(s) How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues Expenses = Net Income The effect of recording actual warranty cost: Activity Accounts Statement(s) How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues Expenses = Net Income Determine the adjusted ending balance in the Estimated Liability for Warranties account. $
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