Accounting: What the Numbers Mean
11th Edition
ISBN: 9781259535314
Author: David Marshall, Wayne William McManus, Daniel Viele
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Textbook Question
Chapter 7, Problem 7.10E
Exercise 7.10
LO 5
Other accrued liabilities-warranties Prist Co. had not provided a warranty on its products, but competitive pressures forced management to add this feature at the beginning of 2016. Based on an analysis of customer complaints made over the past two years, the cost of a warranty program was estimated at 0.3% of sales. During 2016, sales totaled $6,900,000. Actual costs of servicing products under warranty totaled $19,400.
Required:
- Use the horizontal model (or a T-account of the Estimated Warranty Liability) to show the effect of having the warranty program during 2016.
- What type of accrual adjustment should be made at the end of 2016?
- Describe how the amount of the accrual adjustment could be determined.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
EXERCISE 7
Filmore Company started selling a new product that carried a 2-year warranty against defects. The warranty
provides assurance that the new product will function as intended based on agreed-upon specifications. Based
on past experiences with other products, the estimated warranty costs related to peso sales are computed as
follows:
First year of warranty
3%
Second year of waranty
5%
Total sales and actual warranty repairs for 2019 and 2020 are given:
2019
2020
P 4,200,000
Actual warranty expenditures 148,800
Sales
P 6,960,000
180,000
REQUIRED:
a.) What amount should Fillmore report as its estimated warranty liability as of December 31,2020?
b.) Based on the above data, assuming that sales and repairs occur evenly throughout the year, how much would
be the predicted warranty expense covering 2019 and 2020 sales still under warranty at December 31,2020?
Problem 15
On December 31, 2017, Entity Z acquired Lumangyao Corporation’s P1,000,000 notes for P927,880. The market interest rate at that time was 12%. The stated interest rate was 10%, payable annually. The notes mature in five years and classified as financial asset at amortized cost. At December 31, 2019, the note is considered credit impaired. Entity Z determined that it was probable that the issuer would pay back only P600,000 of the principal at maturity. At December 31, 2020, because of the improvement in the credit rating of Lumangyao, Entity Z reassessed the collectibility of the note and now expects to collect P900,000 from Lumangyao at maturity date.
The required loss allowance at Dec. 31, 2019 is
The impairment gain to be recognized in 2020 is
Problem 15
On December 31, 2017, Entity Z acquired Lumangyao Corporation's P1,000,000 notes for
P927,880. The market interest rate at that time was 12%. The stated interest rate was 10%,
payable annually. The notes mature in five years and classified as financial asset at amortized
cost. At December 31, 2019, the note is considered credit impaired. Entity Z determined that it
was probable that the issuer would pay back only P600,000 of the principal at maturity. At
December 31, 2020, because of the improvement in the credit rating of Lumangyao, Entity Z
reassessed the collectibility of the note and now expects to collect P900,000 from Lumangyao
at maturity date.
18. The required loss allowance at Dec. 31, 2019 is
Chapter 7 Solutions
Accounting: What the Numbers Mean
Ch. 7 - Prob. 7.1MECh. 7 - Mini-Exercise 7.2 LO 4 Other accrued...Ch. 7 - Mini-Exercise 7.3 LO 5 Other accrued...Ch. 7 - Prob. 7.4MECh. 7 - Exercise 7.5 LO 2 Notes payable-discount basis On...Ch. 7 - Prob. 7.6ECh. 7 - Exercise 7.7 LO 4 Other accrued...Ch. 7 - Exercise 7.8 LO 5 Other accrued liabilities-real...Ch. 7 - Exercise 7.9 LO 5 Other accrued...Ch. 7 - Exercise 7.10 LO 5 Other accrued...
Ch. 7 - Exercise 7.11 LO 3 Unearned revenues-customer...Ch. 7 - Exercise 7.12 LO 3 Unearned revenues-ticket sales...Ch. 7 - Prob. 7.13ECh. 7 - Prob. 7.14ECh. 7 - Prob. 7.15ECh. 7 - Prob. 7.16ECh. 7 - Prob. 7.17ECh. 7 - Prob. 7.18ECh. 7 - Prob. 7.19ECh. 7 - Prob. 7.20ECh. 7 - Exercise 7.21 LO 4. 5, 8 Transaction...Ch. 7 - Prob. 7.22ECh. 7 - Prob. 7.23ECh. 7 - Prob. 7.24ECh. 7 - Prob. 7.25PCh. 7 - Problem 7.26 LO 3 Unearned revenues-subscription...Ch. 7 - Prob. 7.27PCh. 7 - Prob. 7.28PCh. 7 - Prob. 7.29PCh. 7 - Prob. 7.30PCh. 7 - Prob. 7.31PCh. 7 - Prob. 7.32PCh. 7 - Prob. 7.33CCh. 7 - Prob. 7.34CCh. 7 - Prob. 7.35C
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Exercise 13-15 (Algo) Warranties; financial statement effects [LO13-5, 13-6] Cupola Awning Corporation introduced a new line of commercial awnings in 2024 that carry a two-year warranty against manufacturer's defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 3% of sales. Sales and actual warranty expenditures for the first year of selling the product were: Sales $ 5,860,000 Actual Warranty Expenditures $ 39,750 Required: 1. Does this situation represent a loss contingency? 2. Prepare journal entries that summarize sales of the awnings (assume all credit sales) and any aspects of the warranty that should be recorded during 2024. 3. What amount should Cupola report as a liability at December 31, 2024? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Loss contingency Does this situation represent a loss contingency? Required 3 Yes Answer is not complete. € Required 1 Required 2 >arrow_forwardProblem 22 In its December 31, 2022 statement of financial position, Reederei Company reported receivables of P250,000 and related allowance for uncollectibility of P20,000. Such receivables are in litigation and the cost of litigation is 20% of the receivables. At December 31, 2022, it is reasonably possible that Beirut Company will not be able to collect on the receivables after litigation. What is the total amount of risk of accounting loss related to Reederei’s receivables? What is the total amount of off balance sheet risk related to Reederei’s receivables?arrow_forwardExercise 20-14 (Algo) Warranty expense [LO20-4] Woodmier Lawn Products introduced a new line of commercial sprinklers in 2020 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 3% of sales. Sales of the sprinklers in 2020 were $3,300,000. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product: Accrued liability and expense Warranty expense (3% × $3,300,000) 99,000 Warranty liability 99,000 Actual expenditures (summary entry) Warranty liability 45,540 Cash (or salaries payable, parts and supplies, etc.) 45,540 In late 2021, the company's claims experience was evaluated and it was determined that claims…arrow_forward
- eBook Chapter 9 HW Call Systems Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial troreases in sales volume and the amount of uncollectible accournts, the company is considering changing to the allowance method. Informmation is requested as to the effect that an annual.proviston of W% of sales woul have had on the amount of bad debt expense reported for each of the past four years. Its also considered desirable to know whhat the balance ofAlowance for Doubtful Accunts would have been at the end of each year. The Compare Two Methods of Accounting for Uncollectible Receivables Tollowing dala have been oblained from the accounts: Year of Origin of Accounts Receivable Written Off as Uncollectible Uncollectible Accounts 1st 2nd 3rd 4th Year Sales Written Off 1st 51,340,000 $1,200 51,200 2nd 1,840,000 3,150 1,500 $1,650 3rd.…arrow_forwardChapter 4/Question 3: Mobiles Co sells goods with a one year warranty under which customers are covered for any defect that becomes apparent within a year of purchase. In calendar year 20X4, Mobiles Co sold 100,000 units. The company expects warranty claims for 5% of units sold. Half of these claims will be for a major defect, with an average claim value of $50. The other half of these claims will be for a minor defect, with an average claim value of $10. What amount should Mobiles Co include as a provision in the statement of financial position for the year ended 31 December 20X4?arrow_forwardQuèstion 12 Classic Sales Company offers warranties on all their electronic goods. Warranty expense is estimated at 4% of sales revenue. In 2018, the company had $602,000 of sales. In the same year, it paid out $12,000 of warranty payments. Which of the following is the entry needed to record the estimated warranty expense? O Warranty Expense Estimated Warranty Payable O Warranty Expense Estimated Warranty Payable O Estimated Warranty Payable 24,080 24,080 18,060 18,060 12,000 Cash 12,000 O Warranty Expense 18,060 Sales Revenue 18,060arrow_forward
- Question 8 Dreadful Behaviour Ltd has credit sales of $400,000 in 2022 and a debit balance of $1,900 in the Allowance for Doubtful Accounts at year end. As of December 31, 2022, $120,000 of accounts receivable remain uncollected. The credit manager of Dangle prepared an aging schedule of accounts abnor receivable and estimates that $4,800 will prove to be uncollectible. On March 3, 2023 the credit manager authorizes a write-off of the $1,000 balance owed by D. Taylor. On April 1, 2023 Mr. Taylor pays his account in full and also pays Dangle $75 interest on his account Required (a) Prepare the adjusting entry to record the estimated uncollectible accounts expense in 2022. (b) Show the statement of financial position presentation of accounts receivable on December 31, 2022. (c) On March 3, 2023 before the write-off, assume the balance of Accounts Receivable account is $160,000 and the balance of Allowance for Doubtful Accounts is a credit of $3,000. Make the appropriate entry to record…arrow_forward12 Warranty Costs Milford Company sells a motor that carries a 60-day unconditional warranty against product failure. Based on a reliable statistical analysis, Milford knows that between the sale and the end of the product warranty period, two percent of the units sold will require repair at an average cost of $125 per unit. The following data reflect Milford's recent experience: Units sold Known product failures from sales in: October November December October November December Dec. 31 Total 34,500 33,000 37,500 105,000 180 270 195 240 330 315 690 525 315 Calculate the estimated liability for product warranties at December 31. $ (Assume that warranty costs of known failures have already been reflected in the records.)arrow_forwardQUESTION 22 The operating cycle for Smithson Limited for the year ended 31 December 2020 was 38,9 days. In the previous financial year it had been 37.8 days. Which of the following statements are correct? A-The operating cycle has worsened slightly in the 2020financial year compared to the previous financial year. B-A longer operating cycle indicates that the company has been more successful in collecting its trade receivables early. a. Both of them b.A only C. B only d. Neither of themarrow_forward
- Problem 27 On January 1, 2022, De Vera Company loaned Dagpin Company amounting to P2,000,000 and received a two-year, 6%, P2,000,000 note. The note calls for annual interest to be paid each December 31. De Vera collected the 2022 interest on schedule. However, on December 31, 2023, based on the Dagpin’s recent financial difficulties, De Vera expects that the 2023 interest, which was recorded in the books, will not be collected and that only P1,200,000 of the principal will be recovered. The P1,200,000 principal amount is expected to be collected in two equal installments on December 31, 2025 and December 31, 2027. The prevailing interest rate for similar type of note as of December 31, 2023 is 8%. What is the loan impairment loss to be recognized for the year 2023 How much is the interest income for the year 2025? The carrying amount of the loan as of December 31, 2026 is:arrow_forwardP15–14 Integrative: Comparison of loan terms Cumberland Furniture wishes to establish a prearranged borrowing agreement with a local commercial bank. The bank’s terms for a line of credit are 3.30% over the prime rate, and each year the borrowing must be reduced to zero for a 30-day period. For an equivalent revolving credit agreement, the rate is 2.80% over prime with a commitment fee of 0.50% on the average unused balance. With both loans, the required compensating balance is equal to 20% of the amount borrowed. (Note: Cumberland currently maintains $0 on deposit at the bank.) The prime rate is currently 8%. Both agreements have $4 million borrowing limits. The firm expects on average to borrow $2 million during the year no matter which loan agreement it decides to use. What is the effective annual rate under the line of credit? What is the effective annual rate under the revolving credit agreement? (Hint:Compute the ratio of the dollars that the firm will pay in interest and…arrow_forwardP14–10 Relaxation of credit standards Lewis Enterprises is considering relaxing its credit standards to increase its currently sagging sales. As a result of the proposed relaxation, sales are expected to increase by 10% from 10,000 to 11,000 units during the coming year, the average collection period is expected to increase from 45 to 60 days, and bad debts are expected to increase from 1% to 3% of sales. The sale price per unit is $40, and the variable cost per unit is $31. The firm’s required return on equal-risk investments is 10%. Evaluate the proposed relaxation, and make a recommendation to the firm. (Note: Assume a 365-day year.)arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
Accounts Receivable and Accounts Payable; Author: The Finance Storyteller;https://www.youtube.com/watch?v=x_aUWbQa878;License: Standard Youtube License