Warranties

Beck Company sells a product for $3,200. When the customer buys it, Beck provides a one-year warranty. Beck sold 120 products during 2017. Based on analysis of past warranty records, Beck estimates that repairs will average 4% of total sales.

Required:

1. Identify and analyze the effect of the estimated liability.

Activity	OperatingInvestingFinancing
Accounts	Warranty Expense Increase, Estimated Liability for Warranties IncreaseWarranty Expense Increase, Estimated Liability for Warranties DecreaseWarranty Expense Decrease, Estimated Liability for Warranties IncreaseWarranty Expense Decrease, Estimated Liability for Warranties Decrease
Statement(s)	Balance Sheet onlyIncome Statement onlyBalance Sheet and Income Statement

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

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

CashEstimated Liability for WarrantiesPrepaid Warranty ExpenseSales ExpensesWarranty ExpenseNo Entry

fill in the blank 8912920d2034ff0_2

CashEstimated Liability for WarrantiesSales ExpensesSales RevenueWarranty ExpenseNo Entry

fill in the blank 8912920d2034ff0_4

fill in the blank 8912920d2034ff0_5

CashEstimated Liability for WarrantiesSales ExpensesSales RevenueWarranty ExpenseNo Entry

fill in the blank 8912920d2034ff0_7

CashEstimated Liability for WarrantiesPrepaid Warranty ExpenseSales ExpensesWarranty ExpenseNo Entry

fill in the blank 8912920d2034ff0_9

fill in the blank 8912920d2034ff0_10

2. Assume that during 2017, products under warranty must be repaired using repair parts from inventory costing $10,200. Identify and analyze the effect of the repair of products.

Activity	OperatingInvestingFinancing
Accounts	Estimated Liability for Warranties Increase, Inventory IncreaseEstimated Liability for Warranties Increase, Inventory DecreaseEstimated Liability for Warranties Decrease, Inventory IncreaseEstimated Liability for Warranties Decrease, Inventory Decrease
Statement(s)	Balance Sheet onlyIncome Statement onlyBalance Sheet and Income Statement

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

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Accounts PayableAccounts ReceivableEstimated Liability for WarrantiesInventoryWarranty ExpenseNo Entry

fill in the blank 871477070f9b02e_2

Accounts ReceivableCashEstimated Liability for WarrantiesSales RevenueWarranty ExpenseNo Entry

fill in the blank 871477070f9b02e_4

fill in the blank 871477070f9b02e_5

Accounts ReceivableCashEstimated Liability for WarrantiesSales RevenueWarranty ExpenseNo Entry

fill in the blank 871477070f9b02e_7

Accounts PayableAccounts ReceivableEstimated Liability for WarrantiesInventoryWarranty ExpenseNo Entry

fill in the blank 871477070f9b02e_9

fill in the blank 871477070f9b02e_10

3. Assume that the balance of the Estimated Liability for Warranties account as of the beginning of 2017 was $1,100. Calculate the balance of the account as of the end of 2017. $fill in the blank 97433d012fae077_1