Reference no: EM132872338
Question - On Oct. 1, 2019, Snow Crafts Co. began to buy and resell snow shoes for $700 each. Snow Craft uses the perpetual system to account for inventories. The snow shoes are covered under a two-year warranty that requires the company to replace any non-working snow shoes within 90 days. When a pair of snow shoes is returned, the company simply discards that and sends a pair of new ones from inventory to the customer. (Ignore sales taxes).
The company's replacement cost for a new snow shoes is $250. The manufacturer has advised the company to expect warranty costs to equal 2% of the total units sold in the first year and 5% in the second year.
Required - Prepare the entry required for the following transactions occurred in October 2019:
1. Oct 5 Sold 100 pairs of snow shoes on cash. Recognized warranty liability for this sales.
2. Oct 10 Replaced 3 pairs of snow shoes that were returned under the warranty period. Recognized warranty transaction.
3. Oct 15 Sold 150 paurs of snow shoes on account. Recognized warranty liability for this sales.
4. Oct 20 Replaced 15 pairs of snow shoes that were returned under the warranty. Recognized warranty transaction.
5. Use a "T" account to show the ending balance of Estimated Warranty Payable at Oct. 31 2019.
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