The Captian company began operations on January 1, 2016. In 2016, Captain's sales were $400,000, and payments
Question:
The Captian company began operations on January 1, 2016. In 2016, Captain's sales were $400,000, and payments arising out of warranty obligations were $18,000.
Required:
a. Assume that this is an assurance-type warranty and $0.10 of warranty cost will be incurred for each $1.00 of sales. Prepare the 2016 journal entry(ies) for warranty expenses and payments using the modified cash basis.
b. Assume that this is an assurance-type warranty and $0.10 of warranty cost will be incurred for each $1.00 of sales. Prepare the 2016 journal entry(ies) for warranty expense and payments using the GAAP approach which requires that the warranty expense (and the related liability) be accrued in the period of the sale.
c. Assume that this is a service-type warranty and $0.10 of each $1.00 of sales represents warranty revenue. Prepare the 2016 journal entries related to product sales and warranty activities.
Financial Accounting Tools for Business Decision Making
ISBN: 978-1119368458
7th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine