Question

In: Accounting

(3 marks) Kimmel Corp. uses the expense approach (assurance type) to account for warranties. They sell...

Kimmel Corp. uses the expense approach (assurance type) to account for warranties. They sell a used car for $30,000 on Oct 25, Year 6, with a one-year warranty covering parts and labour. Warranty expense is estimated at 2% of the selling price, and the appropriate adjusting entry is recorded on Dec 31, Year 6. On March 12, Year 7, the car is returned for warranty repairs. This cost Kimmel $320 (you can assume a cash credit). Provide the journal entry for the March 12, repair.

        

b) In Year 8, Kimmel Corp. began selling an extended warranty (service type) for its used cars that will provide three years of coverage. Expenditures are estimated to occur evenly over the three years. The average selling price is $8,000, and the extended warranty sells for $999. Of the 1,000 cars sold in Year 8, 60% of customers purchased the warranty. Assume all sales occurred on July 1. There were no warranty claims during Year 8. Provide the journal entry (entries) to record the sale of vehicles and the extended warranty.

Solutions

Expert Solution

Date General Ledge Debit Credit
12-Mar Provision for warranty A/c---Dr                      320
To Cash A/c                320
(Being provision used for actual expenses)
July 1, Year 8 Cash A/c----Dr          8,000,000
To Revenue A/c    8,000,000
(Being sales recorded for Car)
cash A/c---Dr              599,400
To Deferred revenue A/c       599,400
(Being extended warranty sold and recorded as deferred revenue)
Warranty expenses A/c---Dr              160,000
To Warranty Provision A/c       160,000
(Being 2% warranty provision created for sales of car)

Related Solutions

Question No 3: (10 Marks) “The role of internal audit is to provide independent assurance that...
Question No 3: “The role of internal audit is to provide independent assurance that an organisation's risk management, governance and internal control processes are operating effectively” On the light of the above statement, explain what features of an internal audit department would enable the external auditor to trust on the work done by the internal auditing department? Use your own views and response to question. (300 words)
Brown Cow Dairy uses the aging approach to estimate bad debt expense. The ending balance of...
Brown Cow Dairy uses the aging approach to estimate bad debt expense. The ending balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $12,500; (2) up to 120 days past due, $5,500; and (3) more than 120 days past due, $5,000. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectibility is (1) 4 percent, (2)...
Blue Skies Equipment Company uses the aging approach to estimate bad debt expense at the end...
Blue Skies Equipment Company uses the aging approach to estimate bad debt expense at the end of each accounting year. Credit sales occur frequently on terms n/60. The balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, (2) up to one year past due, and (3) more than one year past due. Experience has shown that for each age group, the average loss rate on the amount of the...
Starlight, a Broadway media firm, uses the balance sheet approach to estimate the uncollectable accounts expense....
Starlight, a Broadway media firm, uses the balance sheet approach to estimate the uncollectable accounts expense. At year-end an aging of the accounts receivable produced the following five groupings: a. Not yet due $610,000 b. 1-30 days past due 200,000 c. 31-60 days past due 100,000 d. 61-90 days past due 64,000 e. Over 90 days past due 18,000      Total $992,000 On the basis of past experience, the company estimated the percentages probably uncollectible for the above five age...
Blue Skies Equipment Company uses the aging approach to estimate bad debt expense at the end...
Blue Skies Equipment Company uses the aging approach to estimate bad debt expense at the end of each accounting year. Credit sales occur frequently on terms n/60. The balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, (2) up to one year past due, and (3) more than one year past due. Experience has shown that for each age group, the average loss rate on the amount of the...
Penny Company uses the aging approach to estimate bad debt expense. The ending balance of each...
Penny Company uses the aging approach to estimate bad debt expense. The ending balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $285,000; (2) up to 120 days past due, $50,000; and (3) more than 120 days past due, $21,000. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectibility is (1) 2.5 percent, (2) 12...
Brown Cow Dairy uses the aging approach to estimate bad debt expense. The ending balance of...
Brown Cow Dairy uses the aging approach to estimate bad debt expense. The ending balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $14,000, (2) up to 120 days past due, $4,500, and (3) more than 120 days past due, $2,500. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectibility is (1) 2 percent, (2)...
Blue Skies Equipment Company uses the aging approach to estimate bad debt expense at the end...
Blue Skies Equipment Company uses the aging approach to estimate bad debt expense at the end of each accounting year. Credit sales occur frequently on terms n/60. The balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, (2) up to one year past due, and (3) more than one year past due. Experience has shown that for each age group, the average loss rate on the amount of the...
Suggest one (1) consequence of improperly classifying an account type (e.g., if an expense is classified...
Suggest one (1) consequence of improperly classifying an account type (e.g., if an expense is classified as an asset or an asset is classified as an expense). Describe the effect on at least two (2) of the four (4) major financial statements: Profit & Loss (Income) Statement, Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flow.
Short answer The Company uses the balance sheet approach to estimate bad debt expense. Credit sales...
Short answer The Company uses the balance sheet approach to estimate bad debt expense. Credit sales for the period were $10 million. The beginning balance in the allowance for doubtful accounts was a credit balance of $44,300. During the year, $41,000 of receivables were written off. The aging schedule suggests that the ending balance in the allowance for doubtful accounts is $51,500. What was bad debt expense for the period? Credit sales were $950,000. Cash flow from operating activities was...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT