It is assumed that no components sold during a given month are returned in that month
Each component is stamped with a date at time of sale so that the warranty may be properly
The following table of percentages indicates the likely pattern of sales returns during the 6-
month period of the warranty, starting with the month following the sale of components
Month following sale
Fourth through sixth- 10% each month
Percentage of total
Gross sales of components were as follows for the first six months of 2016:
cost on defective components returned and
The warranty also covers the payment of freight
on the new components sent out as replacements
The freight cost runs approximately 5% of the sales price of the components returned
The manufacturing cost of the components is roughly 70% of sales price, and the salvage
value of returned components averages 10% of their sales price.
Returned components on hand on January 1, 2016, were thus valued in inventory at 10% of
their original sales price.
1. Determine the estimated sales returns subsequent to June 30, 2016.
2. Determine the required estimated warranty liability on June 30, 2016.
3. Prepare the adjustment of the estimated warranty liability on June 30, 2016.
Answer rating: 100% (QA)
To determine the estimated sales returns subsequent to June 30 2016 apply the given percentages for each month following the sale The percentages areView the full answer