Principles of Accounting
12th Edition
ISBN: 9781133626985
Author: Belverd E. Needles, Marian Powers, Susan V. Crosson
Publisher: Cengage Learning
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Question
Chapter 11, Problem 3P
1.
To determine
Prepare
2.
To determine
Calculate the ending balance of the estimated product warranty liability account.
3.
To determine
Describe the effects on current and future years’ income if company’s product warranty liability is underestimated
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Hidden Hills Company manufactures and sells electronic games. Each game costs $50 to produce, sells for $90, and carries a warranty that provides for free replacement if it fails during the two years following the sale. In the past, 7 percent of the games sold had to be replaced under the warranty. During July, Hidden Hills sold 6,500 games, and 700 games were replaced under the warranty.
1. Prepare a journal entry to record the estimated liability for product warranties during the month.2. Prepare a journal entry to record the games replaced under warranty during themonth.
Gen sells cellular phones. Each phone sells for P10,000 and carries a warranty against
defects of period of 1 year counting from the date of purchase. The firm sold 60,000
phones in 2019. Past experience indicates that 10% of the phones will need some type of
repair during the warranty period. In the past, the firm has incurred expenditures at P400
on each telephone needing repair due to manufacturing defects. At the beginning of the
year, the Estimate Liability for Warranties account had a credit of P59,400. Actual
expenditures during the year amounted to P1.5M. The balance of the Estimated Liability
for Warranties at year-end is:
O 500,000
O 2,400,000
O 1,500,000
0 950,000
Oven Roasted sold $394,000 of consumer electronics during July under a two-year warranty. The cost to repair defects under the warranty is estimated at 7.5% of the sales price. On November 10, a customer was given $93 cash under terms of the warranty.
(a) Provide the journal entry for the estimated warranty expense on July 31 for July sales. If an amount box does not require an entry, leave it blank.
(b) Provide the journal entry for the November 10 cash payment. If an amount box does not require an entry, leave it blank.
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- Yummy sold $656,000 of consumer electronics during July under a one-year warranty. The cost to repair defects under the warranty is estimated at 6.5% of the sales price. On November 10, a customer was given $188 cash under terms of the warranty. (a) Provide the journal entry for the estimated warranty expense on July 31 for July sales. If an amount box does not require an entry, leave it blank. July 31 (b) Provide the journal entry for the November 10 cash payment. If an amount box does not require an entry, leave it blank. Nov. 10arrow_forwardOn October 29, Lobo Company began operations by purchasing razors for resale. The razors have a 90-day warranty. When a razor is returned, the company discards it and mails a new one from Merchandise Inventory to the customer. The company's cost per new razor is $16 and its retail selling price is $70. The company expects warranty costs to equal 5% of dollar sales. The following transactions occurred. November 11 Sold 60 razors for $4,200 cash.. November 30 Recognized warranty expense related to November sales with an adjusting entry. Replaced 12 razors that were returned under the warranty. Sold 180 razors for $12,600 cash. December 9 December 16 December 29 December 31 Replaced 24 razors that were returned under the warranty. Recognized warranty expense related to December sales with an adjusting entry. Sold 120 razors for $8,400 cash. January 5 January 17 Replaced 29 razors that were returned under the warranty. January 31 Recognized warranty expense related to January sales with an…arrow_forwardA company sold 122 bikes at $180 each. The bikes carry a 3-year warranty for defects. The company estimates that repair costs will average 5.0% of the total selling price. The estimated warranty liability at the beginning of the year was $1,100 and $1,500 in claims were actually incurred during the year to honor the warranty. What was the ending balance in the estimated warranty liability account? Select one: a. $1,098 b. $698 c. $1,272 d. $400 e. $1,498| This has been asked here previously, but different posts with the same questions have different answers. What is the correct one?arrow_forward
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