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E13-11 Warranties

E13-11 Warranties
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Solution Guide / Answer Key:

ACC/422 (ACC422)
INTERMEDIATE FINANCIAL ACCOUNTING II
University of Phoenix (UoP)

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2007).
Intermediate accounting, (12th ed.) (13th Ed.)
Hoboken, NJ: John Wiley & Sons.

Week Five (Week 5)
Chapter 13 and Chapter 21
E13-11 (Warranties) Sheryl Crow Equipment Company sold 500 Rollomatics during 2007 at $6,000 each. During 2007, Crow spent $20,000 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.

Instructions
(a) Prepare 2007 entries for Crow using the expense warranty approach. Assume that Crow estimates the total cost of servicing the warranties will be $120,000 for 2 years.
(b) Prepare 2007 entries for Crow assuming that the warranties are not an integral part of the sale. Assume that of the sales total, $150,000 relates to sales of warranty contracts. Crow estimates the total cost of servicing the warranties will be $120,000 for 2 years. Estimate revenues earned on the basis of costs incurred and estimated costs.

 

FILE: MS WORD

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