QUESTION 5 (17 marks) On November 1, 2013, Ace Appliances began selling coffee machines for $70. Coffee machines come with a 60-day warranty that requires Ace to replace a defective machine at no cost to the customer. Ace's cost for a new coffee machine is $28. Defective machines are thrown out and replaced to the customer from inventory. Ace uses a perpetual inventory record-keeping system Warranty costs are expected to equal 20% of total units sold. Ace has a December 31 year-end. The following transactions occurred in 2013 and 2014. 2013 November Sold 80 coffee machines for $5,600 Recorded warranty expense for November December Replaced 15 coffee machines under warranty Sold 120 coffee machines for $8,400 Recorded warranty expense for December 2014 January Sold 85 coffee machines for $5,950 Replaced 16 coffee machines under warranty Recorded warranty expense for January 1. Prepare all journal entries related to the November, December and January transactions. (11 marks) Show all calculations. || Date Account Titles Debit Credit 2. Complete the following schedule indicating the balance in the warranty expense and estimated warranty liability accounts at the end of November and December 2013, and January 2014. (6 marks) Show all calculations. Warranty expense | Estimated warranty liability Date November 30, 2013 December 31, 2013 January 31, 2014 QUESTION 5 (17 marks) On November 1, 2013, Ace Appliances began selling coffee machines for $70. Coffee machines come with a 60-day warranty that requires Ace to replace a defective machine at no cost to the customer. Ace's cost for a new coffee machine is $28. Defective machines are thrown out and replaced to the customer from inventory. Ace uses a perpetual inventory record-keeping system Warranty costs are expected to equal 20% of total units sold. Ace has a December 31 year-end. The following transactions occurred in 2013 and 2014. 2013 November Sold 80 coffee machines for $5,600 Recorded warranty expense for November December Replaced 15 coffee machines under warranty Sold 120 coffee machines for $8,400 Recorded warranty expense for December 2014 January Sold 85 coffee machines for $5,950 Replaced 16 coffee machines under warranty Recorded warranty expense for January 1. Prepare all journal entries related to the November, December and January transactions. (11 marks) Show all calculations. || Date Account Titles Debit Credit 2. Complete the following schedule indicating the balance in the warranty expense and estimated warranty liability accounts at the end of November and December 2013, and January 2014. (6 marks) Show all calculations. Warranty expense | Estimated warranty liability Date November 30, 2013 December 31, 2013 January 31, 2014
