Warranty_Problem_2

Warranty_Problem_2 - $76,000 C. Estimated Warranty...

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Ninja, Inc. estimates warranty costs as a percentage of sales as follows: Year of Sale 2% First Year after Sale 3.5% Second Year after Sale 3% Third Year after Sale 1.5% Sales in 2001 were $1,000,000 while sales in 2002 were $1,200,000. Actual warranty cost incurred in 2001 was $24,000 while the actual warranty cost incurred in 2002 was $66,000. Of this $66,000, $30,000 was related to sales in 2001 while $36,000 was related to sales in 2002. 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. A. Warranty Expense $24,000 Cash/Wages Payable/Inventory/etc. $24,000 B. Warranty Expense $76,000 = ($1,000,000 @ 10%) - $24,000 Estimated Warranty Liability
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Unformatted text preview: $76,000 C. Estimated Warranty Liability $66,000 Cash/Wages Payable/Inventory/etc. $66,000 (There are alternative correct answers; the answer affects the following two answers) D.1. Warranty Expense $120,000 = ($1,200,000 @ 10%) Estimated Warranty Liability $120,000 D.2. Warranty Expense $120,000 Estimated Warranty Liability $120,000 2001 $1,000,000 @ 10% $100,000 2002 $1,200,000 @ 10% $120,000 Total Estimated Warranty Costs $220,000 Costs Incurred to Date ($ 90,000) Required Balance in Liability $130,000 Current Balance in Liability ($ 10,000) = $76,000 - $66,000 Required Adjustment $120,000 If you chose an alternative answer for C, answers to D1 and D2 will not be $120,000. If you debited Warranty Expense for $66,000 in C, then the number should be $54,000. If you split them, debiting Warranty Expense for $36,000 and Est. Warranty Liab. for $30,00, then the correct amount is $84,000....
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This note was uploaded on 09/20/2011 for the course ACCT 301 taught by Professor Staff during the Spring '11 term at S.F. State.

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