Question
In 2017, Mare Company began selling a new calculator that carried a two year warranty against defects. Mare projected the estimated warranty cost (as a
In 2017, Mare Company began selling a new calculator that carried a two year warranty against defects.
Mare projected the estimated warranty cost (as a percent of sales) as follows:
First year of warranty 4%
Second year of warranty 10%
Sales and actual warranty repairs were:
| 2017 | 2018 |
Sales | 5,000,000 | 9,000,000 |
Actual warranty repairs | 200,000 | 560,000 |
Required:
1 ) Prepare the entries in connection with the warranty using the expense as incurred approach for 2017 and 2018.
To record 2017 warranty expense | ||
Warranty Expense | ||
Cash |
2 ) Prepare the entries in connection with the warranty using the accrual approach for 2017 and 2018.
To record 2017 warranty expense | ||
Warranty Expense | ||
Estimated warranty liability | ||
To record 2017 actual warranty expense | ||
Estimated warranty liability | ||
Cash | ||
To record 2018 warranty expense | ||
Warranty expense | ||
Estimated warranty liability | ||
To record the 2018 actual warranty expense | ||
Estimated warranty liability | ||
Cash |
3 ) Determine the estimated warranty liability on December 31, 2018.
Estimated Liability for 2018 | ||
Warranty Expense | ||
2017 | ||
2018 | ||
Actual warranty expense | ||
2017 | ||
2018 | ||
Estimated warranty liability |
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