Munster Sells a Product with a Four-Year Warranty

question 40

Essay

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?

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Definitions:

Q Index Fund

A type of investment fund that aims to replicate the performance of a specific index, often by holding the same assets as the index.

Expected Monetary Value

A calculated projection of the potential financial gain or loss from an investment or decision under uncertainty.

X Index Fund

A type of index fund designed to track the performance of a specific market index, denoted here as 'X' as a placeholder for the index name.