Kieso, Weygandt, Warfield, Young, Wiecek Intermediate Accounting, Eighth Canadian Edition 13-7 when the concept of income taxes is added to the formula, calculation of the bonus requires solving simultaneous equations. Estimated Liabilities Warranties 26. A warranty (product guarantee) represents a promise by a seller to a buyer to make good on any deficiency in quantity, quality, or performance specifications in a product. Product warranty costs may be accounted for by using the cash basis method or the accrual method . The cash basis method must be used for income tax purposes and for financial accounting purposes when a reasonable estimate of warranty costs cannot be made at the time of sale. The accrual method includes two different accounting treatments: a) expense warranty approach , and b) sales warranty approach. 27. The expense warranty treatment is the generally accepted method for financial accounting purposes and should be used whenever the warranty is an integral and inseparable part of
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This note was uploaded on 03/28/2012 for the course ACCTG ACC423 taught by Professor Smith during the Spring '10 term at University of Phoenix.