gr8flfloyd
Sep 7, 2008, 04:45 PM
Please help me figure out the following problem - THANKS!
The X Corp sells a separate warranty on some of its products. During 2007, it sold 20,000 warranties. Price of the 2 year warranties was $49 each. During 2007 the company paid 280,000 to honor warranty agreements and estimates that additional warranty claims in in the future will be $220,000. Record 1) Original sale of warranties (assume for cash) 2) cost of work done during the year 3) any necessary adjustment at the end of 2007
I need help with part 3), assuming I did parts 1 and 2 correct:
1) dr cash for 980,000 (20,000*49)
cr unearned warranty revenue for 980,000
2) dr warranty expense for 280,000
cr cash for 280,000
3) ??? i'm lost - i know warranty claims in the future for $220,000 is usually a dr warranty expense for 220,000 and cr warranty liability for 220,000, but i don't know how to include that in this adjusting journal entry (or entries?). i also don't know how part 2) affects any necessary adjustment. I know the adjusting journal entry would be easy without the information in part 2) and the information that estimated future claims is 220,000 - i would just dr rev for 490,000 (980,000) and cr unearned rev for 490,000
I appreciate any help. thanks
The X Corp sells a separate warranty on some of its products. During 2007, it sold 20,000 warranties. Price of the 2 year warranties was $49 each. During 2007 the company paid 280,000 to honor warranty agreements and estimates that additional warranty claims in in the future will be $220,000. Record 1) Original sale of warranties (assume for cash) 2) cost of work done during the year 3) any necessary adjustment at the end of 2007
I need help with part 3), assuming I did parts 1 and 2 correct:
1) dr cash for 980,000 (20,000*49)
cr unearned warranty revenue for 980,000
2) dr warranty expense for 280,000
cr cash for 280,000
3) ??? i'm lost - i know warranty claims in the future for $220,000 is usually a dr warranty expense for 220,000 and cr warranty liability for 220,000, but i don't know how to include that in this adjusting journal entry (or entries?). i also don't know how part 2) affects any necessary adjustment. I know the adjusting journal entry would be easy without the information in part 2) and the information that estimated future claims is 220,000 - i would just dr rev for 490,000 (980,000) and cr unearned rev for 490,000
I appreciate any help. thanks