Cupola Awning Corporation introduced a new line of commercial awnings in 2011 that carry a two-year warranty

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Cupola Awning Corporation introduced a new line of commercial awnings in 2011 that carry a two-year warranty against manufacturer’s defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 3% of sales. Sales and actual warranty expenditures for the first year of selling the product were:


Required:

1. Does this situation represent a loss contingency? Why or why not? How should Cupola account for it?

2. Prepare journal entries that summarize sales of the awnings (assume all credit sales) and any aspects of the warranty that should be recorded during 2011.

3. What amount should Cupola report as a liability at December 31, 2011?


Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Related Book For  answer-question

Intermediate Accounting

ISBN: 978-0077400163

6th edition

Authors: J. David Spiceland, James Sepe, Mark Nelson

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