Question

8) 8) A company sells its product subject to a warranty that covers the cost of parts and labour for repairs during the six months after sale. Warranty costs are estimated to be 4.5% of sales for parts, and 1.5% of sales for labour. During the month of June, the company performed warranty work and used $8,000 worth of parts and paid $4,000 in wages for labour to do the warranty work. Sales for June amounted to $450,000. (1) What account should be debited for the $4,000 in labour? (2) What should be the amount of estimated warranty expense for June? (3) If the Estimated Warranty Liability account had a $10,000 credit balance on May 31, what should be the account balance as of June 302 9) Buy Best Company sells personal computers for $2,300 each. The price includes a two-year warranty. During 2015, the company sells 600 computers. On the basis of past experience, the warranty costs are estimated to be $150 per computer. The actual warranty costs paid by Buy Best during 2015 were $45,000. Prepare general journal entries to record the estimated warranty expense and the warranty payments during 2015, 10) 10) During November 2017, Sunset Airlines sold out all of its eight flights going from Toronto to Cuba. Two flights depart in December, 2017 and six flights depart in January 2018, Sunset collected $1,960,000 in November 2017 for the flights. Sunset's year end is December 31. Required: What adjusting entry would be needed to recognize revenue for 2017? Date the entry. What would be the value of the liability on Sunset's Balance Sheet at December 31, 2017? State if the liability is current or non-current.

Answer 1

8)

a) Estimated Warranty Liability
b) Warranty Expense ($450,000 x(4.5% + 1.5%)	27000
C)
	Warranty Liability
Expenditure (8000 + 4000)	12000	10000	Beg. Bal
		27000	Warranty Exp.
		25000	End. Bal.

Answer 2

8)

a) Estimated Warranty Liability

b) Estimated Warranty Expense $450,000 x(4.5% + 1.5%) = $22,500

c) The account balance = 10,000+22,500-12,000=$20,500

b) Warranty Expense ($450,000 x(4.5% + 1.5%)
	27000
C)
	Warranty Liability
Expenditure (8000 + 4000)	12000	10000	Beg. Bal
		27000	Warranty Exp.
		25000	End. Bal.

Answer 3

8)

a) Estimated Warranty Liability

b) Estimated Warranty Expense $450,000 x(4.5% + 1.5%) = $22,500

c) The account balance = 10,000+22,500-12,000=$20,500

b) Warranty Expense ($450,000 x(4.5% + 1.5%)

Answer 4

8)

a) Estimated Warranty Liability

b) Estimated Warranty Expense $450,000 x(4.5% + 1.5%) = $22,500

c) The account balance = 10,000+22,500-12,000=$20,500