Kohl Co. provides warranties for many of its products. The January 1, 2013, bala
ID: 2425976 • Letter: K
Question
Kohl Co. provides warranties for many of its products. The January 1, 2013, balance of the Estimates Warranty Liability account was $37,312. Based on an analysis of warranty claims during the past several years, this year's warranty provision was established at 0.64% of sales. During 2013, the actual cost servicing products under warranty was $28,843, and sales were $2,097,800. Required: What amount of Warranty Expense will appear on Kohl Co.'s income statement for the year ended December 31, 2013? What amount will be reported in the Estimated Warranty Liability account on the December 31, 2013, balance sheet? (Amounts to be deducted should be indicated by minus sign. Round your final answers to nearest whole dollars.) Kohl Co. provides warranties for many of its products. The January 1, 2013, balance of the Estimated Warranty Liability account was $37,312. Based on an analysis of warranty claims during the past several years, this year's warranty provision was established at 0.64% of sales. During 2013, the actual cost of servicing products under warranty was $28,843, and sales were $2,097,800. Required: What amount of Warranty Expense will appear on Kohl Co.'s income statement for the year ended December 31, 2013? What amount will be reported in the Estimated Warranty Liability account on the December 31, 2013, balance sheet? (Amounts to be deducted should be indicated by minus sign. Round your final answers to nearest whole dollars.)Explanation / Answer
Answer:
a. Amount of Warranty expense that will appear on Kohl Co.'s income statement for the year ended 31st December, 2013:
= Actual warranty expense incurred in current year+ Estimated warranty expense
= $28843+ (Sales*0.64%)= $28843+ ($2097800*0.64%)
= $28843+ $13426
= $42269
b. Amount reported in estimated Warranty liabillity account on December, 2013 Balance Sheet:
= Beginning balance- Current year actual warranty costs+ Warranty expense accrued during the year (Sales*0.64%)
=$37312- $28843+ ($2097800*0.64%)= $37312- $28843+ $13426= $21895
In part a, multiple is giving to determine the provision amount which would be Sales* Warranty estimated provision i.e. 0.64% of Sales.
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