11) How should companies estimate and report warranty expense?
12) Matt’s Rug Company began business on January 1, 2011.
Part A:Show the effect of the following events on the accounting equation:
Shareholders' equity
Matt's Rug Company:
Assets
Liabilities
CC
Retained earnings
1
had sales of $100,000 in 2011, all on account. The cost of goods sold was $60,000.
2
expects that warranty expenses will be 6% of sales.
3
pays $4,000 cash for warranty obligation
Part B:Write in the amount (even if $0) as of or for the Year Ended December 31, 2011. Write in the one financial statement where the line item is found.
Amount
Financial Statement
1.
Warranty expense
2.
Estimated warranty liability
3.
Sales
4.
Cash paid for warranty obligations
13) WhackCo began business on January 1, 2011. Show the effect of the following events:
WhackCo had sales of $300,000 in 2011, all on account. The cost of goods sold was 60% of sales.
WhackCo expects that warranty expenses will be 5% of sales.
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