Rotary Tools sells power tools and backs each product it sells with a one-year warranty against...
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Rotary Tools sells power tools and backs each product it sells with a one-year warranty against defects. Based on previous experience, the company expects warranty costs to be approximately 5% of sales. By the end of the first year, sales are $800,000. Actual warranty expenses incurred so far are $12,000. Required: 1. Does this situation represent a contingent liability? 2. & 3. Record the appropriate journal entries for the warranties. 4. What is the ending balance in the Warranty Liability account after the entries in parts 2 and 3? Rotary Tools sells power tools and backs each product it sells with a one-year warranty against defects. Based on previous experience, the company expects warranty costs to be approximately 5% of sales. By the end of the first year, sales are $800,000. Actual warranty expenses incurred so far are $12,000. Required: 1. Does this situation represent a contingent liability? 2. & 3. Record the appropriate journal entries for the warranties. 4. What is the ending balance in the Warranty Liability account after the entries in parts 2 and 3?
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Answer rating: 100% (QA)
1 Yes this situation represents a contingent liability A contingent liability is a potential lia... View the full answer
Related Book For
Financial Accounting
ISBN: 978-0078025549
3rd edition
Authors: J. David Spiceland, Wayne Thomas, Don Herrmann
Posted Date:
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