Purchase Solution

Warranty Costs on Computer Sales

Not what you're looking for?

Ask Custom Question

Equipment Company sells computers for $1,500 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2006, the company sold 700 computers. Based on past experience, the company has estimated the total 2-year warranty costs as $30 for parts and $60 for labor. (Assume sales all occur at December 31, 2006.)

In 2007, C6. incurred actual warranty costs relative to 2006 computer sales of $10,000 for parts and $18,000 for labor.

Instructions
(a) Under the expense warranty treatment, give the entries to reflect the above transactions (accrual method) for 2006 and 2007.
(b) Under the cash basis method, what are the Warranty Expense balances for 2006 and 2007?
(c) The transactions of part (a) create what balance under current liabilities in the 2006 balance sheet?

Purchase this Solution

Solution Summary

The solution explains the accounting treatment for warranty expense

Purchase this Solution


Free BrainMass Quizzes
Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Basics of corporate finance

These questions will test you on your knowledge of finance.