Warranty_Practice_Problem_1

Warranty_Practice_Problem_1 - APP, Inc. estimates warranty...

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APP, Inc. estimates warranty costs as a percentage of sales as follows: Year of Sale 1.9% First Year after Sale 2.2% Second Year after Sale 2% Third Year after Sale 1.5% Sales in 2001 were $5,000,000 while sales in 2002 were $6,200,000. Actual warranty cost incurred in 2001 was $120,000 while the actual warranty cost incurred in 2002 was $330,000. Of this $330,000, $150,000 was related to sales in 2001 while $180,000 was related to sales in 2002. APP, Inc. did not change its estimates for these years. SHOW ALL WORK; ANSWERS WITHOUT WORK WILL BE CONSIDERED INCORRECT A. Record the actual warranty cost incurred in 2001. B. Provide any necessary adjusting entry as of 12/31/01 C. Record the actual warranty cost incurred in 2002. D.1 Assuming an income statement approach, record any necessary adjusting entry as of 12/31/02 D.2 Assuming a balance sheet approach, record any necessary adjusting entry as of 12/31/02. Solution
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