Cupola Awning Corporation introduced a new line of commercia

Cupola Awning Corporation introduced a new line of commercial awnings in 2016 that carry a two-year warranty against manufacturer’s 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:

Prepare journal entries that summarize sales of the awnings (assume all credit sales) and any aspects of the warranty that should be recorded during 2016. (If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field.)

2 Record the accrued liability and expense.

3 Record the actual expenditures.

Cupola Awning Corporation introduced a new line of commercial awnings in 2016 that carry a two-year warranty against manufacturer’s 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:

Solution

Q1. Answer is True. As the warranty expense may have to be incurred for total 2 years from the date of sale Req 2: Journal entries: S.no. Accounts title and explanations Debit $ Credit $ 1 Accounts receivable Account Dr. 5510000       Sales revenue 5510000 2 Warranty Expense Aaccount Dr. 110200      Warranty expense liability (5510000*2%) 110200 3 Warranty expense liability Dr. 60000       Cash account 60000 Req 3: Total estimated warranty liability created 110200 Less: Actual expense incurred 60000 Warranty expense liability shown in BS 50200