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    leonardjustin's Avatar
    leonardjustin Posts: 7, Reputation: 1
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    #1

    Apr 28, 2010, 06:32 PM
    Warranty expense/expenditures
    Truly stumped with this - help?

    Tractor Company estimates its annual warranty expense at 4% of annual net sales. The following information relates to the calendar year 2010:

    Net sales $3,000,000
    Estimated liability under warranties:
    January 1, 2010 100,000
    December 31, 2010, after year-end adjustment 80,000


    The amount of warranty expense for 2010 is?


    The amount of expenditures for warranty costs for 2010 is?
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #2

    Apr 29, 2010, 01:08 AM

    Beginning Balance of Account
    - Warranties expenditures for the year
    = Account Balance prior to Adjustment
    + Adjustment
    = Ending Balance of Account

    Figure out the adjustment based on the % of sales. Plug in the numbers you have, and work backwards to find the numbers you don't have.
    leonardjustin's Avatar
    leonardjustin Posts: 7, Reputation: 1
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    #3

    Apr 29, 2010, 06:33 AM
    so then, using that formula...

    100,000 (beginning balance)
    (140,000)
    = (40,000)
    + 120,000 (3,000,000 x 4%)
    = 80,000 (ending balance)

    warranty expense = 120,000
    warranty expenditures = 140,000

    ?
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #4

    Apr 29, 2010, 11:16 PM

    Yup, you got it. You didn't even let the negative throw you off.

    What that really is is just like doing a t account: setting up the beginning and ending balances, placing in the adjusting entry, and then trying to find what happened in between.
    leonardjustin's Avatar
    leonardjustin Posts: 7, Reputation: 1
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    #5

    Apr 30, 2010, 03:57 AM

    Thank you, Morgaine300 - I can't tell you what a valuable service it is that you and others provide via this web site.
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
    Uber Member
     
    #6

    May 2, 2010, 05:29 PM

    You're welcome. :-) (And I'm sure I speak for all in saying thanks for the good words.)

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