Question: Computer Wholesalers restores and resells notebook computers on eBay It

Computer Wholesalers restores and resells notebook computers on eBay. It originally acquires the notebook computers from corporations upgrading their computer systems, and it backs each notebook it sells with a 90-day warranty against defects. Based on previous experience, Computer Wholesalers expects warranty costs to be approximately 6% of sales. By the end of the first year, sales and actual warranty expenditures are $600,000 and $23,000, respectively.

Required:
1. Does this situation represent a contingent liability? Why or why not?
2. Record warranty expense and warranty liability for the year based on 6% of sales.
3. Record the reduction in the warranty liability and the reduction in cash of $23,000 incurred during the year.
4. What is the balance in the Warranty Liability account after the entries in Requirements 2 and 3?


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  • CreatedJuly 15, 2014
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