The Ja-San Appliance Co. provides a 120-day parts-and-labor warranty on all merchandise it sells. Ja- San estimates the warranty expense for the current period to be \($1,250\) . During the period a customer returned a product that cost \($920\) to repair.

Required:

a. Show the effects of these transactions on the financial statements using a horizontal statements model like the example shown here. Use a + to indicate increase, a — for decrease, and NA for not affected. In the Cash Flow column, indicate whether the item is an operating activity (OA), invest¬ ing activity (IA), or financing activity (FA).

b. Discuss the advantage of estimating the amount of warranty expense.

Transcribed Image Text:

Assets Liab. + Equity Rev. Exp. = Net Inc. Cash Flow