Warranty Expense Warranty Liability 55000 20000 35000 35000

Warranty expense warranty liability 55000 20000 35000

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December 31, 2017Warranty Expense.............................................................Warranty Liability ($55,000 - $20,000)....................35,00035,000Unearned Warranty Revenue...........................................28,000Warranty Revenue...................................................28,000($56,000 ÷ 2)Note to Instructor: The accounting for warranty costs and liability are the same under assurance and sales-type warranties. Under the sales-type warranty part (b), revenue must be recognized.EXERCISE 13-13 (20–30 minutes)1.The FASB requires that, when some amount within the range ofexpected loss appears at the time to be a better estimate than
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any other amount within the range, that amount is accrued.When no amount within the range is a better estimate than anyother amount, the dollar amount at the low end of the range isaccrued and the dollar amount at the high end of the range isdisclosed. In this case, therefore, Salt-n-Pepa Inc. would report aliability of $900,000 at December 31, 2017. 2.The loss should be accrued for $5,000,000. The potentialinsurance recovery is a gain contingency—it is not recordeduntil received.3.This is a gain contingency because the amount to be receivedwill be in excess of the book value of the plant. Gain
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