HW13Q3&Q4 - Q3 During 2006 Venable Co introduced a new line of machines that carry a three-year warranty against manufacturers defects

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manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: Sales Actual Warranty Expenditures 2006 $ 400,000 $ 6,000 2007 1,000,000 30,000 ($ 20,000 related to 2006 sales) 2008 1,400,000 90,000 ($80,000 related to 2007 sales) $2,800,000 $126,000 Instructions (a) Prepare 2006 entries for Venable Co. under a cash basis and an accrual basis. - Cash basis: Dr. Accounts receivable (or Cash) 400,000 Cr. Sales revenue 400,000 Dr. Warranty expense 6,000 Cr. Cash 6,000 - Accrual basis: Dr. Accounts receivable (or Cash) 400,000 Cr. Sales revenue 400,000 Dr. Warranty expense 48,000 (=400,000* (2%+4% +6%) ) Cr. Cash 6,000 Estimated warranty liability 42,000 (b) Prepare 2007 entries for Venable Co. under a cash basis and an accrual basis.
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This note was uploaded on 04/09/2010 for the course ACC 5110 taught by Professor Lee during the Winter '10 term at Wayne State University.

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HW13Q3&Q4 - Q3 During 2006 Venable Co introduced a new line of machines that carry a three-year warranty against manufacturers defects

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