Warranty expense; change in estimate
• LO13–5, LO13–6
Woodmier Lawn Products introduced a new line of commercial sprinklers in 2017 that carry a one-year warranty against manufacturer’s defects. Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the industry. Based on that experience, warranty costs were expected to approximate 2% of sales. Sales of the sprinklers in 2017 were $2.5 million. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product:
Accrued liability and expense
Warranty expense (2% × $2,500,000).......................... 50,000
Estimated warranty liability..................................................................................... 50,000
Actual expenditures (summary entry)
Estimated warranty liability....................................... 23,000
Cash, wages payable, parts and supplies, etc...........................................................................................23,000
In late 2018, the company’s claims experience was evaluated and it was determined that claims were far more than expected—3% of sales rather than 2%.
Required:
1. Assuming sales of the sprinklers in 2018 were $3.6 million and warranty expenditures in 2018 totaled $88,000, prepare any journal entries related to the warranty.
2. Assuming sales of the sprinklers were discontinued after 2017, prepare any
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Intermediate Accounting
- 5 Check my work Exercise 13-16 (Algo) Extended warranties [LO13-5, 13-6] Carnes Electronics sells consumer electronics that carry a 90-day manufacturer's warranty. At the time of purchase, customers are offered the opportunity to also buy a two-year extended warranty for an additional charge. During the year, Carnes received $430,000 for these extended warranties, and on average the warranties were 20% expired by year end. Required: 1-a. Does this situation represent a loss contingency? 1-b. How should it be accounted for? 2. Prepare journal entries that summarize sales of the extended warranties and recognition of any revenue associated with those warranties. Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 2 How should it be accounted for? Revenue is recognized as a(n) and warranty revenue is computed using the Req 1A Req 2 >arrow_forwardEXERCISE 7 Filmore Company started selling a new product that carried a 2-year warranty against defects. The warranty provides assurance that the new product will function as intended based on agreed-upon specifications. Based on past experiences with other products, the estimated warranty costs related to peso sales are computed as follows: First year of warranty 3% Second year of waranty 5% Total sales and actual warranty repairs for 2019 and 2020 are given: 2019 2020 P 4,200,000 Actual warranty expenditures 148,800 Sales P 6,960,000 180,000 REQUIRED: a.) What amount should Fillmore report as its estimated warranty liability as of December 31,2020? b.) Based on the above data, assuming that sales and repairs occur evenly throughout the year, how much would be the predicted warranty expense covering 2019 and 2020 sales still under warranty at December 31,2020?arrow_forwardView Policies Current Attempt in Progress Stellar Corporation sells computers under a 2-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair labor. During 2025, the corporation sells for cash 371 computers at a unit price of $2,570. On the basis of past experience, the 2-year warranty costs are estimated to be $166 for parts and $196 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2025.) The warranty is not sold separately from the computer. (a) Record any necessary journal entries in 2025. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries.) Account Titles and Explanation Debit Creditarrow_forward
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- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning