Company began selling hand tools in Year 1 and provides a one-year warranty for all hand...

 

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Company began selling hand tools in Year 1 and provides a one-year warranty for all hand tools sold. The following information is available for Year 1 and Year 2 related to hand tool sales and the related warranty. Year 1 sales: $100,000 Estimated amount to be paid out under warranty: 2% of sales Warranty claims paid during Year 1: $1,100 Year 2 sales: $250,000 Estimated amount to be paid out under warranty: 2% of sales Warranty claims paid during Year 2 (related to year 1 and year 2 product sales): $4,300 REQUIRED (assume use of the accrual basis for numbers 1-4) 1. Determine Year 1 warranty expense. 2. Determine the 12/31/Year 1 warranty liability balance. 3. Determine Year 2 warranty expense. 4. Determine the 12/31/Year 2 warranty liability balance. 5. If the cash basis is used to account for warranties, determine the Year 1 and the Year 2 warranty expense. (Cash basis is used for income tax purposes) Problem 2: Warranty contract is sold separately. Company sells power tools that come with a one-year warranty. In addition, customers have the option of purchasing an extended warranty that covers years 2 and 3. During 2021, Company sold 10 extended warranties at a price of $200 each. Assume the warranties were sold at the mid-point of 2021 (on average). REQUIRED 1. Prepare a summary journal entry for Company to record the sale of extended warranties during 2021. 2. Assume Company recognizes warranty revenue on a straight-line basis. Determine the warranty revenue to be recognized by Company during 2021, 2022, 2023, and 2024. Company began selling hand tools in Year 1 and provides a one-year warranty for all hand tools sold. The following information is available for Year 1 and Year 2 related to hand tool sales and the related warranty. Year 1 sales: $100,000 Estimated amount to be paid out under warranty: 2% of sales Warranty claims paid during Year 1: $1,100 Year 2 sales: $250,000 Estimated amount to be paid out under warranty: 2% of sales Warranty claims paid during Year 2 (related to year 1 and year 2 product sales): $4,300 REQUIRED (assume use of the accrual basis for numbers 1-4) 1. Determine Year 1 warranty expense. 2. Determine the 12/31/Year 1 warranty liability balance. 3. Determine Year 2 warranty expense. 4. Determine the 12/31/Year 2 warranty liability balance. 5. If the cash basis is used to account for warranties, determine the Year 1 and the Year 2 warranty expense. (Cash basis is used for income tax purposes) Problem 2: Warranty contract is sold separately. Company sells power tools that come with a one-year warranty. In addition, customers have the option of purchasing an extended warranty that covers years 2 and 3. During 2021, Company sold 10 extended warranties at a price of $200 each. Assume the warranties were sold at the mid-point of 2021 (on average). REQUIRED 1. Prepare a summary journal entry for Company to record the sale of extended warranties during 2021. 2. Assume Company recognizes warranty revenue on a straight-line basis. Determine the warranty revenue to be recognized by Company during 2021, 2022, 2023, and 2024.

Answer rating: 100% (QA)

Lets address each part of the problem step by step Problem 1 Warranty Accounting 1 Determine Year 1 ... View the full answer