Brooks Corporation sells portable computer equipment with a two-year warranty contract that requires the corporation to replace
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Instructions
Answer parts (a) to (d) based on the information above.
(a) Record the 2014 journal entries, assuming the cash basis is used to account for the warranties.
(b) Record the 2014 journal entries, assuming the accrual basis expense approach is used to account for the warranties.
(c) What liability relative to these transactions would appear on the December 31, 2014 balance sheet and how would it be classified if the cash basis is used?
(d) What liability relative to these transactions would appear on the December 31, 2014 balance sheet and how would it be classified if the accrual basis expense approach is used?
Answer parts (e) to (h) assuming that in 2015 the actual warranty costs incurred by Brooks Corporation were $21,400 for parts and $39,900 for labour.
(e) Record the necessary entries in 2015, applying the cash basis.
(f) Record the necessary entries in 2015, applying the accrual basis expense approach.
(g) Which method of accounting for warranties would you recommend to the company? Why?
(h) Assume that the warranty costs incurred by Brooks Corporation in 2016 were substantially higher than estimated. How would the company deal with the discrepancy between the estimated warranty liability and the actual warranty expense?
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Related Book For
Intermediate Accounting
ISBN: 978-1118300855
10th Canadian Edition Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy
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