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Brief Exercise 7-4 (Algo) Effect of warranty obligations and payments on financial statements LO 7-4 Lush Landscapes produces and sells electric lawn mowers. During the
Brief Exercise 7-4 (Algo) Effect of warranty obligations and payments on financial statements LO 7-4 Lush Landscapes produces and sells electric lawn mowers. During the first year of operations, the company experienced the following events: 1. The company produced and sold $944,000 worth of lawn mowers. 2. The company provided its customers with a one-year warranty against defects. Based on industry standards, the company estimated that warranty claims would amount to 5 percent of sales. 3. During the year, the company paid $6,900 cash to replace defective lawn mowers. Required: Use a horizontal financial statements model to show how each event affects the balance sheet, income statement, and statement of cash flows. More specifically, record the amounts of the events into the model. Also, in the Statement of Cash Flows column, classify the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA). Note: Enter any decreases to account balances and cash outflows with a minus sign. Leave cells blank if no input is needed
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