107 the captain company began operations on january 1 2016 in 2016 captain s sales w 4313835

107 the captain company began operations on january 1 2016 in 2016 captain s sales w 4313835

107.The Captain Company began operations on January 1, 2016. In 2016, Captain’s sales were $400,000, and payments arising out of warranty obligations were $18,000.

Required:

a.

Assume that this is an assurance-type warranty and $0.10 of warranty cost will be incurred for each $1.00 of sales. Prepare the 2016 journal entry(ies) for warranty expense and payments using the modified cash basis.

b.

Assume that this is an assurance-type warranty and $0.10 of warranty cost will be incurred for each $1.00 of sales. Prepare the 2016 journal entry(ies) for warranty expense and payments using the GAAP approach which requires that warranty expense (and the related liability) be accrued in the period of the sale.

c.

Assume that this is a service-type warranty and $0.10 of each $1.00 of sales represents warranty revenue. Prepare the 2016 journal entries related to product sales and warranty activities.

108.Feller, Inc. sells a certain machine for $35,000. Included in this price is an implied service-type warranty of $950. Fifty machines were sold in 2016. Warranty claims incurred during 2016 amounted to $21,000.

?

Required:

?

Prepare all 2016 journal entries required by the information above.

109.Munster sells a product with a four-year warranty. Warranty costs are estimated as a percentage of sales as follows:

Year of sale

1%

Year after sale

1%

Two years after sale

1%

Three years after sale

4%

Additional data:

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Warranty

?

Year

Sales

Expenditures

2015

$50,000

$ 600

2016

60,000

800

2017

40,000

900

2018

70,000

2,500

?

Required:

a.

If this is an assurance-type warranty and the company uses the modified cash method, what would be warranty expense for 2017?

b.

If this is an assurance-type warranty and and the company uses the GAAP approach of accruing warranty expense (and the related liability) in the year of the sale, what would be warranty expense for 2017?

c.

If the company considers that 7% of the selling price of the produce represents payment for an implied service-type warranty, what amount of unearned warranty revenue would be disclosed on the balance sheet on December 31, 2018?

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