Reference no: EM133189125
Question - The Chapman Company started its business in selling printers with three-year warranty. It estimates its warranty cost as a percentage of peso sales. Based on past experience, it is estimated that 2% will be repaired during the first year of the warranty, 4% will be repaired during the second year of warranty and 6% will be repaired in the third year.
In 2020 and 2021, the company was able to sell 8,000 units and 9,000 units, respectively at a total price of 5,500 per unit. The company also incurred actual repair costs of 930,000 and 2,776,000 in 2020 and 2021, respectively. The selling price of warranty in 500 per unit. The printer is selling at 5,000 if without the warranty.
Your task as an auditor is to determine the balance of warranty liability and amount of revenue recognized by Champman company in years 2020 and 2021.
1. For the year 2020, how much is the recorded sales?
2. For the year 2020, how much is the warranty liability?
3. What is the debit amount of warranty liability to record the actual cost of warranty in 2020?
4. For the year 2021, how much is the recorded sales?
5. For the year 2021, how much is the warranty expenses?
6. How much is the paid cost of warranty during 2021?
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