At the beginning of 2018, Angel Corporation began offering a two-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2018 were $180 million. Fifteen percent of the units sold were returned in 2018 and repaired or replaced at a cost of $5.3 million. The amount of warranty expense on Angel's 2018 income statement is: $5.3 million. $7.2 million. $10.6 million. $27.0 million.

Warranty Expense :— It is the cost expected by company for the reparing or replacement of products…

Answered: At the beginning of 2018, Angel…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 10E

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During 2018, P started manufacturing and selling a new product with a three-year warranty. Based upon past experience with similar products, P estimated the following warranty costs as a % of sales dollars: First year of warranty 2.25% Second year of warranty 2.75% Third year of warranty 3.50% Sales and actual warranty expenditures for 2014 and 2015 were as follows: 2018 2019 Sales $940,000 $1,005,000 Actual warranty expenditures 12,900 47,100 Prepare the entry P made as of 12-31-18 to accrue for its estimated warranty liability. Prepare the entry P made during 2018 to account for actual warranty…
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