Fancy Frames prepares monthly financial statements. The following took place during the months of April and May at Fancy Frames:
a. In April, $15,000 worth of frames was sold. Each is guaranteed for 12 months. Any defective frame will be repaired or replaced free of charge during that period.
b. Fancy Frames estimated that it would cost $500 during the next year to honor the warranties on the April sales.
c. During May, Fancy Frames spent $150 dollars to honor warranties related to April sales.
1. What amount of warranty expense would be shown on the income statement for April?
2. What amount of warranty liability would be shown on the April 30 balance sheet?
3. What effect did recording the warranty expense have on owner’s equity?
4. What amount of warranty expense related to these frames would be shown on the income statement for May?
5. What effect did spending the $150 in May have on owner’s equity?