Accounting : Bramble Company must make computations

Accounting : Bramble Company must make computations

Subject: Business    / Accounting
Question

Bramble Company must make computations and adjusting entries for the following independent situations at December 31, 2018.

1.Its line of amplifiers carries a 3-year warranty against defects. On the basis of past experience the estimated warranty costs related to dollar sales are first year after sale—2% of sales revenue; second year after sale—3% of sales revenue; and third year after sale—5% of sales revenue. Sales and actual warranty expenditures for the first 3 years of business were:

Sales
Revenue
Warranty
Expenditures
2016    $ 724,400    $ 5,900
2017    994,600    17,430
2018    1,266,100    64,870

Compute the amount that Bramble should report as a liability in its December 31, 2018, balance sheet. Assume that all sales are made evenly throughout each year with warranty expenses also evenly spaced relative to the rates above.

Liability should be reported on December 31, 2018    $

2.With some of its products, Bramble includes coupons that are redeemable in merchandise. The coupons have no expiration date and, in the company’s experience, 30% of them are redeemed. The liability for unredeemed coupons at December 31, 2017, was $9,760. During 2018, coupons worth $21,600 were issued, and merchandise worth $8,760 was distributed in exchange for coupons redeemed.

Compute the amount of the liability that should appear on the December 31, 2018, balance sheet.

Liability should be reported on December 31, 2018