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Chapter 11: 12RQ (page 604)

When do businesses record warranty expenses, and why?

Short Answer

Expert verified

Warranty expense is recorded at the time of making sales. It is recorded at the time of sales due to the matching principle.

Step by step solution

01

Warranty

A warranty is a kind of agreement that makes a guarantee against any defects in a company鈥檚 product. It is an expense for the company and a benefit for the customer. Warranty expense is related to the after-sale service.

02

Recording warranty expense

Accounting for warranty expenses is based on the matching principle. Warranty expense is recorded at the time of making sales as warranty payable. This warranty expense is recorded based on estimation. When a company makes sales, it is estimated that some of its products would be claimed for warranty. Based on that estimation warranty expense is determined.

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Most popular questions from this chapter

This problem continues the Canyon Canoe Company situation from Chapter 10. Amber and Zack Wilson are continuing their analysis of the company鈥檚 position and believe the company will need to borrow \(15,000 in order to expand operations. They consult Rivers Nation Bank and secure a 6%, one-year note on September 1, 2019, with interest due at maturity. Additionally, the company hires an employee, John Vance, on September 1. John will receive a salary of \)3,000 per month. Payroll deductions include federal income tax at 25%, OASDI at 6.2%, Medicare at 1.45%, and monthly health insurance premium of \(250. The company will incur matching FICA taxes, FUTA tax at 0.6%, and SUTA tax at 5.4%. Round calculations to two decimals. Omit explanations on journal entries.

Requirements

  1. Record the issuance of the \)15,000 note payable on September 1, 2019.
  2. Record the employee payroll and employer payroll tax entries on September 30, 2019.
  3. Record all payments related to September鈥檚 payroll. Payments are made on October 15, 2019.
  4. Record the entry to accrue interest due on the note at December 31, 2019.

Record the entry Canyon Canoe Company would make to record the payment to the bank on September 1, 2020.

: On June 1, Hunting Man Magazine collected cash of $63,000 on future annual subscriptions starting on July 1. Requirements

1. Journalize the transaction to record the collection of cash on June 1.

2. Journalize the transaction required at December 31, the magazine鈥檚 year-end, assuming no revenue earned has been recorded. (Round adjustment to the nearest whole dollar.)

List the required employee payroll withholding deductions, and provide the tax rate for each.

What are the two main controls for payroll? Provide an example of each.

What are the two main controls for payroll? Provide an example of each.
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