Intermediate Accounting (2nd Edition)
2nd Edition
ISBN: 9780134730370
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 13, Problem 13.3MC
To determine
To identify: The correct option.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Grouper Ltd. manufactures a line of amplifiers that carry a three-year warranty against defects. Based on experience, the estimated
warranty costs related to dollar sales are as follows: first year after sale-3% of sales; second year after sale-4% of sales; and third
year after sale-5% of sales. Sales and actual warranty expenditures for the first three years of business were:
Sales
Warranty
Expenditures
2021
$870,000
$17,100
2022
1,010,000
48,400
2023
1,041,000
80,000
(a) Calculate the amount that Grouper should report as warranty expense on its 2023 income statement and as a warranty liability on
its December 31, 2023 SFP using the assurance-type warranty (expense-based approach). Assume that all sales are made evenly
throughout each year and that warranty expenditures are also evenly spaced according to the rates above.
Warranty expense
$
Warranty liability
$
During Year 3, the Seahawks Inc. sold 150 dune buggies for $4,000 each. The dune buggies carry a five-year warranty for defects. Estimates are that repair costs will
average 4% of the total selling price. The warranty liability at the beginning of the year was $14,000, and $20,000 in claims was actually incurred during Year 3 to honour
warranties.
Refer to Seahawks Inc. What is the balance in the warranty liability at the end of the Year 2?
O $24,000
O $18,000
$14,000
O $38,000
Concord Ltd. manufactures a line of amplifiers that carry a three-year warranty against defects. Based on
experience, the estimated warranty costs related to dollar sales are as follows: first year after sale-2% of
sales; second year after sale-4% of sales; and third year after sale-5% of sales. Sales and actual warranty
expenditures for the first three years of business were: Sales Warranty Expenditures 2021 $750,000 $
15,900 2022 1,010,000 46, 000 2023 1,017, 000 80,000 (a) Calculate the amount that Concord should
report as warranty expense on its 2023 income statement and as a warranty liability on its December
31, 2023 SFP using the assurance - type warranty (expense - based approach). Assume that all sales are
made evenly throughout each year and that warranty expenditures are also evenly spaced according to the
rates above. Warranty expense Warranty liability
Chapter 13 Solutions
Intermediate Accounting (2nd Edition)
Ch. 13 - Prob. 13.1QCh. 13 - Prob. 13.2QCh. 13 - Prob. 13.3QCh. 13 - Do sellers recognize sales taxes as expenses on...Ch. 13 - Prob. 13.5QCh. 13 - Prob. 13.6QCh. 13 - Prob. 13.7QCh. 13 - What is a gam contingency? Is It accrued and...Ch. 13 - Do firms always accrue and record loss...Ch. 13 - Prob. 13.10Q
Ch. 13 - Prob. 13.11QCh. 13 - Prob. 13.12QCh. 13 - Prob. 13.13QCh. 13 - Prob. 13.14QCh. 13 - Prob. 13.15QCh. 13 - Prob. 13.16QCh. 13 - Prob. 13.1MCCh. 13 - Prob. 13.2MCCh. 13 - Prob. 13.3MCCh. 13 - Medical Services Inc allows employees at the end...Ch. 13 - Trade Notes Payables. On February 1, Seville...Ch. 13 - Unearned Revenues. On June 1 of the current year,...Ch. 13 - Unearned Revenues. GoSnow Inc. provides snow...Ch. 13 - Prob. 13.4BECh. 13 - Prob. 13.5BECh. 13 - Prob. 13.6BECh. 13 - Sales Taxes Payable. Kloth Fabric Store operates...Ch. 13 - Prob. 13.8BECh. 13 - Prob. 13.9BECh. 13 - Prob. 13.10BECh. 13 - Asset Retirement Obligation at Acquisition. On...Ch. 13 - Prob. 13.12BECh. 13 - Asset Retirement Obligation, Disposal. Buckner...Ch. 13 - Prob. 13.14BECh. 13 - Prob. 13.15BECh. 13 - Prob. 13.16BECh. 13 - Prob. 13.17BECh. 13 - Warranty Liability, Assurance-Type Warranty,...Ch. 13 - Prob. 13.19BECh. 13 - Prob. 13.20BECh. 13 - Trade Notes Payable. On November 1, Barcelona...Ch. 13 - Unearned Revenues. On May 1 of the current year,...Ch. 13 - Gift Cards. Diamond Depot sold 57,000 of gift...Ch. 13 - Sales Taxes Payable. Eaton Technology operates...Ch. 13 - Prob. 13.5ECh. 13 - Asset Retirement Obligation. On January 1,...Ch. 13 - Prob. 13.7ECh. 13 - Prob. 13.8ECh. 13 - Prob. 13.9ECh. 13 - Prob. 13.10ECh. 13 - Prob. 13.11ECh. 13 - Accounting for Premiums. Supergreen Grocers, Inc....Ch. 13 - Prob. 13.13ECh. 13 - Payroll Taxes Payable, Pay Exceeds. Wage Base....Ch. 13 - Current Operating Liabilities. James Stores, Inc....Ch. 13 - Prob. 13.2PCh. 13 - Prob. 13.3PCh. 13 - Prob. 13.4PCh. 13 - Prob. 13.5PCh. 13 - Prob. 13.6PCh. 13 - Prob. 13.7PCh. 13 - Payroll Taxes Payable. Jackson Corporation employs...Ch. 13 - Prob. 1JCCh. 13 - Prob. 2JCCh. 13 - Prob. 3JCCh. 13 - Financial Statement Analysis Case You are...Ch. 13 - Surfing the Standards Case 1: Environmental...Ch. 13 - Prob. 2SSCCh. 13 - Prob. 1BCC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Presley Company sells a product that includes a one-year warranty on parts and labor. During the year, 10,000 units are sold. Presley expects that 3% of the units will be defective and that the average warranty cost will be $50 per unit. Actual warranty costs incurred during the year were $14,000. Instructions Prepare the journal entries to record (a) the estimated warranty costs and (b) the actual costs incurred. Prepare the necessary journal entries for the following transactions: (a) On September 1, Lore Company borrowed $150,000 from National Bank on a 6-month, 8% note. (b) On December 31, Lore Company accrued interest (assume adjusting entries are only made at the end of the year).arrow_forwardBlue Jay, Inc., manufactures and sells computer monitors with a three-year warranty.Warranty costs are expected to average 7% of sales during the warranty period. The followingtable shows the sales and actual warranty payments during the first two years of operations:Year Sales Warranty Payments2018 $650,000 $ 5,8502019 850,000 42,500Based on these facts, what amount of warranty liability should Blue Jay, Inc., report on itsbalance sheet at December 31, 2019?a. $48,350b. $56,650c. $105,000d. $42,500arrow_forwardCalla Corp. sells equipment that comes with a two-year unlimited warranty on parts and labour for repairs. All sales are cash sales. The warranty is intended to assure customers that the appliances will operate as advertised. The warranty is expected to cost 2% of sales in the first year and 4% of sales in the second year, for a total of 6%. The provision for warranty has a credit balance of $189,000 at the beginning of 20X5. The following events and decisions relate to the warranty: 20X5 Sales revenue of $4,650,000 was generated from products covered by the warranty. Both the sale and the warranty provision must be recorded. 20X5 Warranty work consumed parts inventory with a cost of $8,300, and labour of $33,000. Labour costs were paid in cash. 20X6 Sales revenue from products covered by the warranty were $6,650,000. Both the sale and the warranty provision must be recorded. 20X6 Warranty work…arrow_forward
- Aviation Systems sells its products with a three-year manufacturing warranty. The company's sales revenue is $600,000. Based on prior experience, the company estimates that warranty costs are 5% of sales revenue. Actual warranty costs related to these sales were $5,000 during the year. How much is the estimated warranty liability reported in the balance sheet this year? Multiple Choice $25,000. $30,000. $10,000. $5,000, >arrow_forwardA company manufactures electronic equipment and offers a one-year warranty with each unit sold. For the year, the company sold 25,000 units. Based on historical averages, management expects 4% of the units sold will need warranty work. The estimated warranty cost per unit is $100.Required:Estimate (a) the number of units that will need warranty work and (b) future warranty costs. (c) Prepare the year-end adjusting entry for estimated warranty costs, assuming none of the units sold in the current year required warranty work. (d) Alternatively, prepare the year-end adjusting entry for estimated warranty costs, assuming that 25% of the estimated warranty work has already occurred by the end of the current year. How would your answers change if management’s estimate of warranty work increases to 5% of units sold and the estimated warranty cost per unit increases to $120?arrow_forwardDuring the current year, Gardner Home Center sold 800 power washers for $350 each. The power washers carry a 2-year warranty for repairs. Estimates indicate that repair costs will average 2% of sales. How much warranty expense should be accrued at the end of the current year as a result of the sales of this product? a.$8,400 b.$5,600 c.$2,800 d.No liability should be recorded until units are brought in for repairs.arrow_forward
- Consumer Corp. sells dishwashers and washing machines that come with a two-year unlimited warranty on parts and labour for repairs. The warranty is intended to assure customers that the appliances will operate as advertised. The warranty is expected to cost 4% of sales in the first year and 6% of sales in the second year, for a total of 10%. The provision for warranty has a credit balance of $161,000 at the beginning of 20X5. The following events and decisions relate to the warranty: 20X5 Sales revenue of $4,750,000 was generated from products covered by the warranty. Both the sale and the warranty provision must be recorded. 20X5 Warranty work consumed parts inventory with a cost of $8,500, and labour of $35,000. 20X6 Sales revenue from products covered by the warranty were $6,750,000. Both the sale and the warranty provision must be recorded. 20X6 Sales revenue of $6,750,000 was generated from products covered by the warranty. Warranty work…arrow_forwardRotary Tools sells power tools and backs each product it sells with a one-year warranty against defects. Based on previous experience, the company expects warranty costs to be approximately 6% of sales. By the end of the first year, sales are $700,000. Actual warranty expenses incurred so far are $12,000.1. Does this situation represent a contingent liability? Yes No 2. & 3. Record the appropriate journal entries for the warranties. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.) Record warranty expense and warranty liability for the year based on 6% of sales. Transaction General Journal Debit Credit 1 Record the actual warranty expenditures of $12,000 incurred so far. Transaction General Journal Debit Credit 2 4. What is the…arrow_forwardA company sold 122 bikes at $180 each. The bikes carry a 3-year warranty for defects. The company estimates that repair costs will average 5.0% of the total selling price. The estimated warranty liability at the beginning of the year was $1,100 and $1,500 in claims were actually incurred during the year to honor the warranty. What was the ending balance in the estimated warranty liability account? Select one: a. $1,098 b. $698 c. $1,272 d. $400 e. $1,498| This has been asked here previously, but different posts with the same questions have different answers. What is the correct one?arrow_forward
- Warranty Expense: A home improvement store sells lawnmowers and includes a warranty they will be free of defects for 1 year. The store estimates $2 per lawnmower sold will result in warranty covered defects. The company sells 1000 lawnmowers during the accounting period. The company also replaces $600 worth of lawnmowers due to ACTUAL warranty issues with customers during the accounting period. What is the Warranty Expense based on All the information above for the accounting period. O $2,000 O $1,400 O $600 O $2,600arrow_forwardA new product introduced by Reyes Promotions carries a two-year warranty against defects. The estimated warranty costs related to peso sales are as follows: Year of sale.. .3% Year after sale..... .5% Sales and actual warranty expenditures for the years ended December 31, 2020 and 2021 are as follows: Sales 800,000 1,000,000 Expenditures 12,000 70,000 2020 2021 11. How much is the warranty expense in 2021? 12. How much is the estimated liability as of December 31, 2021? Assume the 2020 warranty did not yet expire.arrow_forwardModem Appliances, Inc. sells food processors for $150 with a 120-day warranty against defects. Past experience indicates that 5% of the processors will have some defect during the warranty period and that the necessary repairs and adjustments will cost $25 per defective unit. Sales for August are $225,000. What is the estimated liability for product warranties for units sold in August? Select one: a. $3,000 b. $1,800 C. $11,250 d. $1,875 e. None of the abovearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Revenue recognition explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=816Q6pOaGv4;License: Standard Youtube License