Question

Computer Wholesalers restores and resells notebook computers. It originally acquires the notebook computers from corporations upgrading their computer systems, and It backs each notebook It sells with a 90-day warranty against defects. Based on previous experience, Computer Wholesalers expects warranty costs to be approximately 6% of sales. Sales for the month of December are $410,000. Actual warranty expenditures in January of the following year were $13,500.

1. Does this situation represent a contingent liability?
Yes
No
1. Record the contingent liabilities for warranties.
4. What is the balance in the warranty liability account after the entries in Part 2 and 3?
Warranty liability _____

Answer 1

The responses to these question can be defined as follows:

Step-by-step explanation:

In question 1:

YES, the guarantee expense is an obligation.

In question 4:

Journal entries:

Date Title of Account Dr Cr

31-Dec expense Warranty
`(460000*4\%)` 18400

Estimated liability Warranty 18400

31-Jan Estimated liability Warranty 16000

Cash 16000

Balance on Warranty Liability:

Part -2 31-Dec Approximate amount of guarantee liability: $ 18400

Part-3 31-Jan Approximate amount of guarantee liability: $ 2400