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.

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?

  • CreatedJuly 15, 2014
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