Munster sells a product with a four-year warranty. Warranty costs are estimated as a percentage of sales as follows:
a. If this is an assurance-type warranty and the company uses the modified cash method, what would be warranty expense for 2017?
b. If this is an assurance-type warranty and and the company uses the GAAP approach of accruing warranty expense and the related liability) in the year of the sale, what would be warranty expense for 2017?
c. If the company considers that 7% of the selling price of the produce represents payment for an implied service-type warranty, what amount of unearned warranty revenue would be disclosed on the balance sheet on December 31, 2018?

Question

Munster sells a product with a four-year warranty. Warranty costs are estimated as a percentage of sales as follows:  
a. If this is an assurance-type warranty and the company uses the modified cash method, what would be warranty expense for 2017?
b. If this is an assurance-type warranty and and the company uses the GAAP approach of accruing warranty expense and the related liability) in the year of the sale, what would be warranty expense for 2017?
c. If the company considers that 7% of the selling price of the produce represents payment for an implied service-type warranty, what amount of unearned warranty revenue would be disclosed on the balance sheet on December 31, 2018?

Quizplus · Accepted Answer

The Answer of Munster sells a product with a four-year warranty. Warranty costs are estimated as a percentage of sales as follows:  
a. If this is an assurance-type warranty and the company uses the modified cash method, what would be warranty expense for 2017?
b. If this is an assurance-type warranty and and the company uses the GAAP approach of accruing warranty expense and the related liability) in the year of the sale, what would be warranty expense for 2017?
c. If the company considers that 7% of the selling price of the produce represents payment for an implied service-type warranty, what amount of unearned warranty revenue would be disclosed on the balance sheet on December 31, 2018?

Munster Sells a Product with a Four-Year Warranty