Cupola Awning Corporation introduced a new line of commercial awnings in 2018 th

Question

Cupola Awning Corporation introduced a new line of commercial awnings in 2018 that carry a two-year warranty against manufacturers defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 4% of sales Sales and actual warranty expenditures for the first year of selling the product were Sales Required: 1. Does this situation represent a loss contingency? 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 2018. 3. What amount should Cupola report as a liability at December 31, 2018? Complete this question by entering your answers in the tabs below Required 1Required 2 Required 3 Does this situation represent a loss contingency? Required 2>

Explanation / Answer

1)Yes ,the situation represent loss contingency since the product has been sold and related warranty obligation has been incurred.

A contingent liability for the warranty should be accrued.

2)

3

**estimated warranty liability = 5950000*4% = 238000 out of which 43750 is paid so remaining warranty liability = 194250

3)Liability reported at December 31,2018 is equal to estimated warranty liability at end = 194250

Date Account title Debit credit 1 Accounts receivable 5,950,000 sales revenue 5,950,000 2 warranty expense 43750 cash 43750 [being actual warranty incurred]

3

Warranty expense 194250 estimated warranty liability 194250

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.