Question: Various Liabilities For each of the following items, indicate how the financial statements will be affected. Identify the affected accounts specifically.
1. Whirlpool Corporation sells electric appliances, including washing machines. On January 1, 2012, Whirlpool had a liability of $191 million for future warranty claims. Suppose that experience in recent years has indicated that warranty costs for washing machines average 3.2% of sales, and sales of washing machines for January 2012 were $1,000 million. During January Whirlpool paid $30 million to service warranties on previously sold washing machines.
2. In Iowa customers buying soft drinks pay a 5¢ deposit on each bottle or can purchased. (Many other states and countries have similar laws.) The bottler/distributor then pays 5¢ plus a 1¢ handling fee for each returned bottle or can. About 86% of the bottles and cans are redeemed. Suppose PepsiCo sold 1.96 million bottles of soda in August and paid $101,000 for bottles returned.
3. Wells Fargo received a $4,000 savings deposit on April 1. On June 30, it recognized interest thereon at an annual rate of 3%. On July 1, the depositor closed her account with the bank.
4. Suppose The Contemporary Theater Company sold for $320,000 cash a "season's series" of tickets in advance of December 31 for four performances, each to be held in successive months beginning in January.
(a) What is the effect on the balance sheet, December 31?
(b) What is the effect on the balance sheet, January 31?