Response to the following :
Report warranties in the financial statements) Refer to the data given in problem . What amount of warranty expense will Tires USA report during 2014? Which accounting principle addresses this situation? Does the warranty expense for the year equal the year's cash payments for warranties? Explain the relevant accounting principle as it applies to measuring warranty expense.
Problem:
Account for warranty expense and estimated warranty payable
Tires USA guarantees tires against defects for five years or 60,000 miles, whichever comes first. Suppose Tires USA can expect warranty costs during the five-year period to add up to 5% of sales. Assume that a Tires USA dealer in Atlanta, Georgia, made sales of $674,000 during 2014. Tires USA received cash for 35% of the sales and took notes receivable for the remainder. Payments to satisfy customer warranty claims totaled $19,400 during 2014.
1. Record the sales, warranty expense, and warranty payments for Tires USA.
2. Post to the Estimated Warranty Payable T-account. The beginning balance was $14,000. At the end of 2014, how much in estimated warranty payable does Tires USA owe to its customers?