Bears Inc. sells football helmets to local schools and warrants all of its products for one year. While no helmets sold in 2021 have been returned yet, based upon previous years, Bears Inc. estimates that 3% of its products will need repairs or be replaced within the next year. What effect would this warranty have on assets, liabilities, and stockholders' equity in 2021?
A) A decrease in assets and decrease in stockholders' equity.
B) No journal entry is necessary until products under warranty are returned.
C) An increase in stockholders' equity and a decrease in liabilities.
D) A decrease in stockholders' equity and an increase in liabilities.
Answer: D
Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2% of Strikers' goals will need repair under the warranty program. For the year, Strikers has sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a goal is $200, what would be the warranty liability at the end of the year?
A) $0.
B) $16,000.
C) $7,000.
D) $9,000.
Answer: C
Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2% of Strikers' goals will need repair under the warranty program. For the year, Strikers has sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a goal is $200, what would be the warranty expense for the year?
A) $0.
B) $16,000.
C) $7,000.
D) $9,000.
Answer: B
No comments:
Post a Comment