Valix Finacc vol 2 Problem 1-27

Financial Accounting Volume 2 2008 Valix-Peralta
Chapter 1 Problem 1-27

Accrual approach

     2008                                                                                                                      

1. Cash                                                                                               5,000,000                                Sales                                                                                                               5,000,000                   

2. Warranty expense                                                                          700,000

            Estimated warranty liability (14% x 5,000,000)                                             700,000

3. Estimated warranty liability                                                           390,000                      

            Cash                                                                                                                           390,000                                                                                                                                    

              2009                                                                                                                                  

1. Cash                                                                                               9,000,000                                Sales                                                                                                               9,000,000                   

2. Warranty expense                                                                       1,260,000

            Estimated warranty liability (14% x 9,000,000)                                          1,260,000

3. Estimated warranty liability                                                           900,000                                Cash                                                                                                                  900,000

                                                                                                                                           

“Expense” approach

           

     2008

1. Cash                                                                                               5,000,000

            Sales                                                                                                               5,000,000

                                                                                                                                   

2. Warranty expense                                                                          390,000

            Cash                                                                                                                  390,000

     2009

1. Cash                                                                                               9,000,000

            Sales                                                                                                               9,000,000

2. Warranty expense                                                                         900,000

            Cash                                                                                                                  900,000