Question

On 30 April 20X2, Neuman Limited sells a product to a customer for $ 600,000. The product carries a one- year assurance warranty. Neuman management estimates that the probable cost of fulfilling the warranty will be $ 50,000. Between 1 May and 31 December 20X2, the actual warranty cost was $ 20,000. On 31 December 20X2, management decides that the remaining warranty provision ( i. e., the additional warranty costs still to be incurred) will be no more than $ 13,000. Between 1 January and 30 April 20X3, the additional cost was $ 11,000.

Required:
1. Prepare the entries concerning the sale and the warranty for 30 April 20X2 through 30 April 20X3.
2. Assume instead that the warranty can be sold separately and is valued at 10% of the total contract value. Prepare the relevant journal entries for 30 April 20X2 through 30 April 20X3.



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  • CreatedFebruary 17, 2015
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