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Requirement 3
Warranty Expense:
2020 144,000
2021 240,000 384,000
Less: Actual Warranty Payments
2020 40,000
2021 150,000 190,000
Estimated Warranty Liability, 12/31/21 194,000
Requirement 2: Accrual
2020
Cash 4,500,000
Sales 4,500,000
Warranty Expense (300 x 60% x 800) 144,000
Estimated Warranty Liability 144,000
Estimated Warranty Liability 40,000
Cash 40,000
2021
Cash (500 x 15000) 7,500,000
Sales 7,500,000
Warranty Expense (500 x 60% x 800) 240,000
Estimated Warranty Liability 240,000
Estimated Warranty Liability 150,000
Cash 150,000
Requirement 4
Warranty Expense related to 2020 Sales
2020
First Contract year of 01/01/20 (150 x 20% x 800) 24,000
First Contract year of 07/01/20 (150 x 20% x 800 x 6/12) 12,000
2021
First Contract year of 07/01/20 (150 x 20% x 800 x 6/12) 12,000
Second Contract year of 01/01/20 (150 x 40% x 800) 48,000
Second Contract year of 07/01/20 (150 x 40% x 800 x 6/12) 24,000
2022
Second Contract year of 07/01/20 (150 x 40% x 800 x 6/12) 24,000
Warranty Expense for 2020 144,000
Noncurrent Liabilities
Unearned Warranty Liability 81,000
PROBLEM 3-14
Warranty Expense at 8% of Net Sales
Warranty Liability before adjustment (100000/8%) 1,250,000
Warranty Liability after adjustment (540000/8%) 6,750,000
Net Sales 8,000,000 A
PROBLEM 3-15
Requirement 1
Sales 5,000,000
Multiply: Rate (2% + 5%) 0.07
Warranty Expense, 2020 350,000 A
Requirement 2
Warranty Expense, 2020 350,000
Actual Warranty Cost, 2020 -100,000
Warranty Liability, 12/31/20 250,000 B
Requirement 3
Sales 7,000,000
Multiply: Rate (2% + 5%) 0.07
Warranty Expense, 2020 490,000 C
Requirement 4
Warranty Liability, 12/31/20 250,000
Warranty Expense, 2020 490,000
Total 740,000
Warranty Cost, 2021 300,000
Warranty Liability, 12/31/21 440,000 B