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Cupola Awning Corporation introduced a new line of commercial awnings in 2013 that carry a...

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Accounting

Cupola Awning Corporation introduced a new line of commercial awnings in 2013 that carry a two-year warranty against manufacturers defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 2% of sales. Sales and actual warranty expenditures for the first year of selling the product were:

Sales Actual Warranty Expenditures
$5,920,000 $61,250

Required:
1.1 Does this situation represent a loss contingency?

  • No

  • Yes

1.2 How should Cupola account for it?

2.

Prepare journal entries that summarize sales of the awnings (assume all credit sales) and any aspects of the warranty that should be recorded during 2013. All actual warranty expenditures were paid for in cash. (If no entry is required for a particular event, select "No journal entry required" in the first account field.)

Record 2013 sales

Record accrued liability and expense

Record actual expeditures

3. What amount should Cupola report as a liability at December 31, 2013?

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