Cupola Awning Corporation introduced a new line of commercial awnings in 2013 that carry a two-year warranty against manufacturer’s defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 2% of sales. Sales and actual warranty expenditures for the first year of selling the product were: |
Sales | Actual Warranty Expenditures |
$5,920,000 | $61,250 |
Required: |
1.1 | Does this situation represent a loss contingency? |
|
1.2 | How should Cupola account for it? |
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 2013. All actual warranty expenditures were paid for in cash. (If no entry is required for a particular event, select "No journal entry required" in the first account field.) |
Record 2013 sales
Record accrued liability and expense
Record actual expeditures
3. | What amount should Cupola report as a liability at December 31, 2013? |
Cupola Awning Corporation introduced a new line of commercial awnings in 2013 that carry a two-year...
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Cupola Awning Corporation introduced a new line of commercial awnings in 2021 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...