Effect of warranty obligations and payments on financial statementsThe Ja-San Company prov...

Effect of warranty obligations and payments on financial statements

The Ja-San Company provides a 120-day parts-and-labor warranty on all merchandise it sells. Ja-San estimates the warranty expense for the current period to be $1,250. During the period a customer returned a product that cost $920 to repair.

Required

a. Show the effects of these transactions on the financial statements using a horizontal state­ments model like the example shown here. Use a + to indicate increase, a — for decrease, and NA for not affected. In the Cash Flow column, indicate whether the item is an operating ac­tivity (OA), investing activity (IA), or financing activity (FA).

b. Discuss the advantage of estimating the amount of warranty expense.