FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Montague Auto Repair specializes in the repair of foreign car transmissions. To encourage business, Montague offers a 6-month warranty on all repairs. The following data are available for 2019:
Transmissions repaired, 2019 | 4,800 | |
Expected frequency of warranty claims | 0.09 | per repair |
Actual warranty claims, 2019 | $137,750 | |
Estimated warranty liability, 1/1/19 | $25,000 | |
Estimated cost of each warranty claim | $300 |
Assume that warranty claims are paid in cash.
Required: | |
1. | Compute the warranty expense for 2019. |
2. | Prepare the entry to record the payment of the 2019 warranty claims. |
3. | Conceptual Connection: What is the December 31, 2019, balance in the warranty liability account? Why has the balance in the warranty liability account changed from January 1, 2019? |
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