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The following information applies to questions 13 & 14: Product Z is sold with a warranty...

The following information applies to questions 13 & 14: Product Z is sold with a warranty offering free replacement if the product fails; it is estimated that 3% of units sold will fail and be replaced. The product sell for $75 per unit, and costs $40 to produce. Six hundred units of Product Z were sold during the month of November, and 14 units were replaced under warranty.

13. How much Warranty Expense should be recorded for the month of November?

a. $1,125

b. $720

c. $1,350

d. $600

14. The journal entry to record the replacement of 14 units under warranty would include:

a. a debit to Warranty Expense for $560

b. a credit to Inventory for $1,050

c. a debit to Estimated Product Warranty Liability for $560

d. a credit to cash for $1,050

19. An amount is invested at 8%, compounded quarterly, for 2 years. What rate and what number of periods would be used to find a future value factor from the tables in order to calculate the future value of this investment?

a. 2% for 4 periods

b. 8% for 2 periods

c. 2% for 8 periods

d. 8% for 4 periods

20. An investment earning 12% interest compounded semi-annually, will accumulate to a greater amount in the future than an equal investment earning 12% compounded quarterly (assume that the two alternatives would be invested for the same amount of time).

a. True

b. False

Solutions

Expert Solution

Q13.
Units sold 600
Multiply: Estimated replacement % 3%
Number of units to be replaced under warranty 18
Multiply: Cost per unit 40
Warranty expense 720
Answer is b. $720.
Q14.
Journal entry
S.no. Accounts title and explanations Debit $ Credit $
a. Estimated Product warranty liabilities 560
      Merchandise inventory (14 units @40) 560
(fr replacement made under warranty)
Answer is c. a debit to Estimated Product Warranty liability $ 560.
Q19.
Answer is c. 2% for 8 periods
Q20.
Answer is b. $ FALSE
The same rate compounded for higher times will yield higher return.

ekkarill92 answered 1 year ago
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