Anderson's Accommodating Automobiles sells used cars. In order to incentivize sales, it offers a 3 year...

 

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Anderson's Accommodating Automobiles sells used cars. In order to incentivize sales, it offers a 3 year warranty for all used car sales. AAA uses a warranty servicing firm to service the payment of specific warranty obligations, with amounts for the year due on December 31. Internal analysts believe that, as a percentage of sales, warranty expenses will be 2% in the first year following the sale, 2.5% in the second year, and 1.5% in the third year. AAA sold $62.35 million in used cars in 2016, and had a balance in the Estimated Warranty Liability account of $2 million. AAA received a bill on December 31, 2020 for $2.5 million from the warranty servicing firm - $1.75 million related to sales in prior years, and the rest relating to sales in 2016. The firm's normal discount rate, calculated as its weighted-average cost of capital, is 7%. Calculate the adjusting entry for warranties for 2020. Anderson's Accommodating Automobiles sells used cars. In order to incentivize sales, it offers a 3 year warranty for all used car sales. AAA uses a warranty servicing firm to service the payment of specific warranty obligations, with amounts for the year due on December 31. Internal analysts believe that, as a percentage of sales, warranty expenses will be 2% in the first year following the sale, 2.5% in the second year, and 1.5% in the third year. AAA sold $62.35 million in used cars in 2016, and had a balance in the Estimated Warranty Liability account of $2 million. AAA received a bill on December 31, 2020 for $2.5 million from the warranty servicing firm - $1.75 million related to sales in prior years, and the rest relating to sales in 2016. The firm's normal discount rate, calculated as its weighted-average cost of capital, is 7%. Calculate the adjusting entry for warranties for 2020.

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3 year warranty 15 in the first year 25 in the second year 15 in the th... View the full answer