PROBLEM 3-1

Requirement 1: Expense as Incured

2020
Cash 4,500,000
Sales 4,500,000
Warranty Expense 40,000
Cash 40,000
2021
Cash 7,500,000
Sales 7,500,000
Warranty Expense 150,000
Cash 150,000

Requirement 3
Warranty Expense:
2020 144,000
2021 240,000 384,000
Less: Actual Warranty Payments
2020 40,000
2021 150,000 190,000
Estimated Warranty Liability, 12/31/21 194,000
 Requirement 2: Accrual
2020
Cash 4,500,000
Sales 4,500,000
Warranty Expense (300 x 60% x 800) 144,000
Estimated Warranty Liability 144,000
Estimated Warranty Liability 40,000
Cash 40,000
2021
Cash (500 x 15000) 7,500,000
Sales 7,500,000
Warranty Expense (500 x 60% x 800) 240,000
Estimated Warranty Liability 240,000
Estimated Warranty Liability 150,000
Cash 150,000
 Requirement 4
Warranty Expense related to 2020 Sales
2020
First Contract, 01/01/20 (150 x 20% x 800) 24,000
First Contract, 07/01/20 (150 x 20% x 800 x 6/12) 12,000
2021
First Contract, 07/01/20 (150 x 20% x 800 x 6/12) 12,000
Second Contract, 01/01/20 (150 x 40% x 800) 48,000
Second Contract, 07/01/20 (150 x 40% x 800 x 6/12) 24,000
2022
Second Contract, 07/01/20 (150 x 40% x 800 x 6/12) 24,000
Warranty Expense for 2020 144,000

Warranty Expense related to 2021 Sales

2021
First Contract, 01/01/20 (250 x 20% x 800) 40,000
First Contract, 07/01/20 (250 x 20% x 800 x 6/12) 20,000
2022
First Contract, 07/01/20 (250 x 20% x 800 x 6/12) 20,000
Second Contract, 01/01/20 (250 x 40% x 800) 80,000
Second Contract, 07/01/20 (250 x 40% x 800 x 6/12) 40,000
2023
Second Contract, 07/01/20 (250 x 40% x 800 x 6/12) 40,000
Warranty Expense for 2021 240,000
 Requirement 5
2020 sales still under warranty after 12/31/2021:
Second Contract year of 7/1/2020 sales 24,000.00
2021 sales still under warranty after 12/31/2021:
First Contract year of 7/1/2020 sales 20,000.00
Second Contract year of 1/1/2020 sales 80,000.00
Second Contract year of 7/1/2020 sales ( 40,000 + 40,000 ) 80,000.00
Estimated Warranty Liability – 12/31/2021 204,000.00
Estimated Warranty Liability per book 194,000.00
Increase in Warranty Liability 10,000.00

Warranty Expense 10,000.00

Estimated Warranty Liability 10,000.00
PROBLEM 3-7
Requirement 1
2020
Cash 2,943,000
Sales (300 x 9000) 2,700,000
Unearned Warranty Liability (270 x 900) 243,000
2021
Unearned Warranty Liability 81,000
Warranty Revenue (243000/3) 81,000
Warranty Expense 60,000
Inventory 20,000
Cash 40,000
 Requirement 2
Current Liabilities
Unearned Warranty Liability 81,000

Noncurrent Liabilities
Unearned Warranty Liability 81,000
PROBLEM 3-14
Warranty Expense at 8% of Net Sales
Warranty Liability before adjustment (100000/8%) 1,250,000
Warranty Liability after adjustment (540000/8%) 6,750,000
Net Sales 8,000,000 A
PROBLEM 3-15
Requirement 1
Sales 5,000,000
Multiply: Rate (2% + 5%) 0.07
Warranty Expense, 2020 350,000 A

Requirement 2
Warranty Expense, 2020 350,000
Actual Warranty Cost, 2020 -100,000
Warranty Liability, 12/31/20 250,000 B

Requirement 3
Sales 7,000,000
Multiply: Rate (2% + 5%) 0.07
Warranty Expense, 2020 490,000 C

Requirement 4
Warranty Liability, 12/31/20 250,000
Warranty Expense, 2020 490,000
Total 740,000
Warranty Cost, 2021 300,000
Warranty Liability, 12/31/21 440,000 B