Clean all Inc. sells washing machine with a three yearwarranty. In the pastClean

Question

Clean all Inc. sells washing machine with a three yearwarranty. In the pastClean all has found that in the year aftersale, warranty cost have been 3% of sales: in the second yearaftersale 5%of sales and in the third year after sale 7%of sales .the following data are also available. Year       Sales    Warranty Expenditures 2007      500,000    62,000 2008       650,000   82,000 2009      700,000    85,000 Required 1. Prepare the journal entries for the preceding transactionsfor 2007-2009, using the expense warranty accrual method. closingentries are not required. 2. What amount would clean-All report as a liability on itsDecember 31, 2009 balance sheet, assuming the liability had abalance of 88,200 on December 31,2006? Clean all Inc. sells washing machine with a three yearwarranty. In the pastClean all has found that in the year aftersale, warranty cost have been 3% of sales: in the second yearaftersale 5%of sales and in the third year after sale 7%of sales .the following data are also available. Year       Sales    Warranty Expenditures 2007      500,000    62,000 2008       650,000   82,000 2009      700,000    85,000 Required 1. Prepare the journal entries for the preceding transactionsfor 2007-2009, using the expense warranty accrual method. closingentries are not required. 2. What amount would clean-All report as a liability on itsDecember 31, 2009 balance sheet, assuming the liability had abalance of 88,200 on December 31,2006?

Explanation / Answer

Year        Sales          1stYear              2ndYear            3rdYear              Total 2007      500,000         3%of500000                                                   =15,000                                                               15,000 2008      650,000         3%of 650000      5% of 500000                                        =19,500               =25000                                    34,000 2009      700,000         3%of 700000      5% of650000   7% of 500000                                       =21,000                =32,500          =35,000            88,500 Liability to be reported on 31/12/2009  88,500 Journal entry for 2007 ===================== WarrantyExpenses                     15,000    To, AccruedW/Expenses                     15,000 Journal entry for 2008 ===================== Journal entry for 2008 ===================== WarrantyExpenses                     34,000    To, AccruedW/Expenses                     34,000 Journal entry for 2009 ===================== WarrantyExpenses                     88,500    To, AccruedW/Expenses                     88,500 WarrantyExpenses                     34,000    To, AccruedW/Expenses                     34,000 Journal entry for 2009 ===================== WarrantyExpenses                     88,500    To, AccruedW/Expenses                     88,500 Journal entry for 2009 ===================== Journal entry for 2009 ===================== WarrantyExpenses                     88,500    To, AccruedW/Expenses                     88,500 WarrantyExpenses                     88,500    To, AccruedW/Expenses                     88,500

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