Celopatra Corporation introduced a new line of home shades in 2021 that carry a two-year warranty against manufacturer’s defects. Based on their experience with previous product introduction, warranty costs are expected to approximate 3% of sales. Sales and actual warranty expenditures for the first year of selling the product were: Sales $5,000,000; Actual warranty $37,500. Additionally, at the time of purchase, customers are offered the opportunity to also buy a two-year extended warranty for an additional charge. During 2021, Celopatra received $412,000 for these extended warranties (approximately evenly throughout the year). REQUIRED: Does the above situation represents a loss contingency? Why or why not? How should Celopatra account for it? Prepare journal entries that summarizes sales of the home shades (assume all credit sales) and any aspects of the warranty that should be recorded during 2021? What amount should Celopatra report as a liability at December 31, 2021? Prepare journal entries that summarizes sale of extended warranties and any aspects of the warranty that should be recorded on year 2024
Celopatra Corporation introduced a new line of home shades in 2021 that carry a two-year warranty against manufacturer’s defects. Based on their experience with previous product introduction, warranty costs are expected to approximate 3% of sales. Sales and actual warranty expenditures for the first year of selling the product were: Sales $5,000,000; Actual warranty $37,500. Additionally, at the time of purchase, customers are offered the opportunity to also buy a two-year extended warranty for an additional charge. During 2021, Celopatra received $412,000 for these extended warranties (approximately evenly throughout the year). REQUIRED: Does the above situation represents a loss contingency? Why or why not? How should Celopatra account for it? Prepare journal entries that summarizes sales of the home shades (assume all credit sales) and any aspects of the warranty that should be recorded during 2021? What amount should Celopatra report as a liability at December 31, 2021? Prepare journal entries that summarizes sale of extended warranties and any aspects of the warranty that should be recorded on year 2024
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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Celopatra Corporation introduced a new line of home shades in 2021 that carry a two-year warranty against manufacturer’s defects. Based on their experience with previous product introduction, warranty costs are expected to approximate 3% of sales. Sales and actual warranty expenditures for the first year of selling the product were: Sales $5,000,000; Actual warranty $37,500.
Additionally, at the time of purchase, customers are offered the opportunity to also buy a two-year extended warranty for an additional charge. During 2021, Celopatra received $412,000 for these extended warranties (approximately evenly throughout the year).
REQUIRED:
- Does the above situation represents a loss contingency? Why or why not? How should Celopatra account for it?
- Prepare
journal entries that summarizes sales of the home shades (assume all credit sales) and any aspects of the warranty that should be recorded during 2021? - What amount should Celopatra report as a liability at December 31, 2021?
- Prepare journal entries that summarizes sale of extended warranties and any aspects of the warranty that should be recorded on year 2024
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