IV. Estimated liabilities WXZ Pools carries a wide variety of residential quality outdoor swimming pools and supplies to maintain the pools. WXZ uses two sales promotion techniques-warranties and premiums-to attract and retain customers. Swimming pools are sold with a two-year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 6% of sales. The premium is offered on the purchases of chemical supplies to maintain the pool. Customers receive a coupon for each dollar spent on pool chemical supplies. Customers may exchange 250 coupons and $5 for an assortment of pool toys. WXZ pays $16 for each pool toy and estimates that 40% of the coupons given to customers will be redeemed. WXZ's total sales for 2019 were $7,500,000-$6,400,000 from outdoor swimming pools and $1,100,000 from pool chemicals. Replacement parts and labor for warranty work totaled $234,000 during 2019. A total of 2,500 pool toys used in the premium program were purchased during the year, and there were 286,000 coupons redeemed in 2019. The accrual method is used by WXZ to account for the warranty and premium costs for financial reporting purposes. The balances in the accounts related to warranties and premiums on January 1, 2019, were as shown below. Inventory of Premiums Premium Liability Warranty Liability $ 6,100 11,800 149,000 WXZ Pools is preparing its financial statements for the year ended December 31, 2019. Use the T accounts below to determine the amounts that will be shown on the 2019 financial statements for the following. (1) Warranty Expense. (2) Warranty Liability. (3) Premium Expense (4) Inventory of Premiums. (5) Premium Liability. Warranty expense Debit Credit Balance Warranty liability Debit Credit Balance Inventory of premiums Debit Credit Balance Premium liability Debit Credit Balance Premium ex pense Debit Credit Balance IV. Estimated liabilities WXZ Pools carries a wide variety of residential quality outdoor swimming pools and supplies to maintain the pools. WXZ uses two sales promotion techniques-warranties and premiums-to attract and retain customers. Swimming pools are sold with a two-year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 6% of sales. The premium is offered on the purchases of chemical supplies to maintain the pool. Customers receive a coupon for each dollar spent on pool chemical supplies. Customers may exchange 250 coupons and $5 for an assortment of pool toys. WXZ pays $16 for each pool toy and estimates that 40% of the coupons given to customers will be redeemed. WXZ's total sales for 2019 were $7,500,000-$6,400,000 from outdoor swimming pools and $1,100,000 from pool chemicals. Replacement parts and labor for warranty work totaled $234,000 during 2019. A total of 2,500 pool toys used in the premium program were purchased during the year, and there were 286,000 coupons redeemed in 2019. The accrual method is used by WXZ to account for the warranty and premium costs for financial reporting purposes. The balances in the accounts related to warranties and premiums on January 1, 2019, were as shown below. Inventory of Premiums Premium Liability Warranty Liability $ 6,100 11,800 149,000 WXZ Pools is preparing its financial statements for the year ended December 31, 2019. Use the T accounts below to determine the amounts that will be shown on the 2019 financial statements for the following. (1) Warranty Expense. (2) Warranty Liability. (3) Premium Expense (4) Inventory of Premiums. (5) Premium Liability. Warranty expense Debit Credit Balance Warranty liability Debit Credit Balance Inventory of premiums Debit Credit Balance Premium liability Debit Credit Balance Premium ex pense Debit Credit Balance
