Big Dots Provides a One-Year Warranty with All Its Products

question 74

Essay

Big Dots provides a one-year warranty with all its products it sells. It estimates that it will sell 350,000 units of its product for the year ended December 31, 2018, and that its total revenue for the product will be $105,000,000. It also estimates that 75% of the product will have no defects, 5% will have major defects, and 20% will have minor defects. The cost of a minor defect is estimated to be $6 for each product repaired, and the cost for a major defect cost is about $21. The company also estimates that the minimum amount of warranty expense will be $1,500,000 and the maximum will be $6,000,000.
Prepare the journal entry for 2018 under the warranty.

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Definitions:

Global Economy

The international network of economic activities, markets, and trade relationships between countries.

Economic Interdependence

The mutual reliance between two or more economies on each other for resources, technology, trade, or investment.

Regional Economic Blocks

Groups of countries located in the same geographic area that form alliances to facilitate economic trade, promote economic growth, and coordinate regulatory policies.

Reshoring

The practice of bringing manufacturing and production back to the company's original country from overseas.