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Warranties
Beck Company sells a product for $3,200. When the customer buys it, Beck provides a one-year warranty. Beck sold 120 products during 2017. Based on analysis of past warranty records, Beck estimates that repairs will average 4% of total sales.
Required:
1. Identify and analyze the effect of the estimated liability.
| Activity | OperatingInvestingFinancing |
| Accounts | Warranty Expense Increase, Estimated Liability for Warranties IncreaseWarranty Expense Increase, Estimated Liability for Warranties DecreaseWarranty Expense Decrease, Estimated Liability for Warranties IncreaseWarranty Expense Decrease, Estimated Liability for Warranties Decrease |
| Statement(s) | Balance Sheet onlyIncome Statement onlyBalance Sheet and Income Statement |
How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.
| Balance Sheet | | Income Statement |
| | | | | | | Stockholders' | | Net |
| Assets | = | Liabilities | + | Equity | | Revenues | | Expenses | = | Income |
| CashEstimated Liability for WarrantiesPrepaid Warranty ExpenseSales ExpensesWarranty ExpenseNo Entry | fill in the blank 8912920d2034ff0_2 | | CashEstimated Liability for WarrantiesSales ExpensesSales RevenueWarranty ExpenseNo Entry | fill in the blank 8912920d2034ff0_4 | | fill in the blank 8912920d2034ff0_5 | | CashEstimated Liability for WarrantiesSales ExpensesSales RevenueWarranty ExpenseNo Entry | fill in the blank 8912920d2034ff0_7 | | CashEstimated Liability for WarrantiesPrepaid Warranty ExpenseSales ExpensesWarranty ExpenseNo Entry | fill in the blank 8912920d2034ff0_9 | | fill in the blank 8912920d2034ff0_10 |
2. Assume that during 2017, products under warranty must be repaired using repair parts from inventory costing $10,200. Identify and analyze the effect of the repair of products.
| Activity | OperatingInvestingFinancing |
| Accounts | Estimated Liability for Warranties Increase, Inventory IncreaseEstimated Liability for Warranties Increase, Inventory DecreaseEstimated Liability for Warranties Decrease, Inventory IncreaseEstimated Liability for Warranties Decrease, Inventory Decrease |
| Statement(s) | Balance Sheet onlyIncome Statement onlyBalance Sheet and Income Statement |
How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.
| Balance Sheet | | Income Statement |
| | | | | | | Stockholders' | | Net |
| Assets | = | Liabilities | + | Equity | | Revenues | | Expenses | = | Income |
| Accounts PayableAccounts ReceivableEstimated Liability for WarrantiesInventoryWarranty ExpenseNo Entry | fill in the blank 871477070f9b02e_2 | | Accounts ReceivableCashEstimated Liability for WarrantiesSales RevenueWarranty ExpenseNo Entry | fill in the blank 871477070f9b02e_4 | | fill in the blank 871477070f9b02e_5 | | Accounts ReceivableCashEstimated Liability for WarrantiesSales RevenueWarranty ExpenseNo Entry | fill in the blank 871477070f9b02e_7 | | Accounts PayableAccounts ReceivableEstimated Liability for WarrantiesInventoryWarranty ExpenseNo Entry | fill in the blank 871477070f9b02e_9 | | fill in the blank 871477070f9b02e_10 |
3. Assume that the balance of the Estimated Liability for Warranties account as of the beginning of 2017 was $1,100. Calculate the balance of the account as of the end of 2017. $fill in the blank 97433d012fae077_1
