[leonardjustin]

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]

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]

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]

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]

Thank you, Morgaine300 - I can't tell you what a valuable service it is that you and others provide via this web site.

[morgaine300]

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