FINANCIAL ACCOUNTING
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ISBN: 9781259964947
Author: Libby
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- An electronic goods retailer sells electronic goods with a standard one-year warranty agreement. The retailer is obligated to remedy any product deficiency through repairs or replacements within one year of the sale. During the year ended 30 June 2020, the retailer sold 50,000 units of products. Based on experience, the retailer estimates that 0.10% of its products sold are brought back to the retailer within one year for major repairs or replacements, and 0.40% of its products sold are brought back for minor repairs under the warranty agreement. The remaining 99.50% of products sold are not brought back for any repair or replacement. The retailer further estimates that a major repair and replacement costs $300 and a minor repair costs $50. The retailer reported a warranty provision of $15,000 on the
Statement of Financial Position on 30 June 2019 and incurred an expenditure of $8,000 to repair and replace products during the year ended 30 June 2020 under the warranty agreement.
Calculate how much new warranty provision the retailer should create during the year ended 30 June 2020
Prepare
Prepare a note showing the reconciliation of warranty provision.
Briefly explain the usefulness of a reconciliation of warranty provision.
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- Braden Bonnet Technologies manufactures sewing and pressing machines that are used in the manufacture of felt hats. Each machine sold includes a three-year limited warranty that guarantees repairs if the machine should fail. The warranty is an integral part of the sale price and is not considered a separate performance obligation. In 2021, 3,000 machines were sold at a price of $11,000 each. Based on past experience, the company has estimated that the expected value of the warranty repairs will be $600 per machine. Actual repair costs on the machines sold in 2021 were incurred as follows: Year Costs Incurred 2021 $970,000 2022 $340,000 2023 $420,000 Required: a. Prepare all the journal entries to record the sale and warranty transactions for 2021 to 2023. b. Determine the warranty liability balance that will be reported at each year-end from 2021 to 2023. (Ctrl) -arrow_forwardFlint Company sells products with a 2-year warranty. Past experience indicates that 2% of the units sold will be returned during the warranty period for repairs. The average cost of repairs under warranty is estimated to be $85 per unit. During 2020, 8,450 units were sold at an average price of $400. During the year, repairs were made on 55 units at a cost of $3,600. Prepare journal entries to record the repairs made under warranty and estimated warranty expense for the year. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries.) Account Titles and Explanation Warranty Expense (To record cost of honoring warranties) Warranty Expense Warranty Liability (To accrue estimated warranty costs) Debit 3600 Credit 3600arrow_forwardCarla Vista Resellers Ltd. (CVRL) sells gently used and refurbished appliances. The company provides a three-month warranty that is included in the cost of the appliance. Claims under the warranties vary from replacing defective parts to providing customers with new appliances if repairs cannot be made. During 2024, the estimated cost related to the three-month warranties was $36,480, of which $24,000 had been incurred before year end ($18,240 on replacement appliances and $5,760 for parts). For an additional charge of $144, CVRL also offers extended warranty coverage for three years on its refurbished appliances. This amount is expected to cover the costs associated with the extended warranties. During 2024, CVRL sold 480 three-year warranty plans. The costs incurred during the year for repairs and replacements under these plans amounted to $14,400. Based on experience, the company estimates that its total warranty costs over the three-year coverage period will be $43,200, which it…arrow_forward
- Adams, Inc. sells widgets that come with an unconditional five-year warranty. According to Adams' best estimates, 7.8% of all units sold will require repair or replacement under that warranty, and the average cost of honoring one warranty claim is $60. During 2023, Adams' first year of operations, 176,000 widgets were sold, 1,278 of which were repaired or replaced under warranty claims. On its December 31, 2023 balance sheet, what amount of warranty liability will Adams report?arrow_forwardWoodmier Lawn Products introduced a new line of commercial sprinklers in 2023 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 2023 were $2.8 million. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product: General Journal Accrued liability and expense Warranty expense (2% × $2,800,000) Warranty liability Actual expenditures (summary entry) Warranty liability Cash Debit 56,000 Required 1 Required 2 25,000 Credit 56,000 In late 2024, the company's claims experience was evaluated and it was determined that claims were far more than expected-3% of sales rather than 2%. View transaction list 25,000 Required: 1. Assuming…arrow_forwardEarly in 2020, Larkspur Equipment Company sold 600 Rollomatics at $5,800 each. During 2020, Larkspur spent $21,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All sales transactions are on a cash basis. Prepare 2020 entries for Larkspur assuming that the warranties are not an integral part of the sale (a service-type warranty). Assume that of the sales total, $58,000 relates to sales of warranty contracts.Warranty costs incurred in 2020 were $21,000. Estimate revenues to be recognized on a straight-line basis. Date Account Titles and Explanation Debit Creditarrow_forward
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