The Following Unadjusted Balances Are Taken from the Trial Balance

question 67

Essay

The following unadjusted balances are taken from the trial balance of Jackson Equipment at December 31, 2014: Jackson Equipment sells and installs security systems. Beginning on December 1, 2014, Jackson began offering a 2-year product warranty. Based on research in the industry, Jackson's management believes that 5% of security systems will require some warranty work and that the typical costs for systems requiring warranty work will be $875 during the first year and $325 during the second year. In December, Jackson supplied and installed 80 systems.
Instructions
a. Calculate and record Jackson's warranty liability at December 31, 2014.
b. Prepare the current liability portion of Jackson's balance sheet at December 31, 2014.

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Definitions:

Capital Balances

The amount of money that the owners of a business have invested in it, typically represented in the equity section of the balance sheet.

Income and Losses

Represents the financial results of a company's operations, with income meaning the revenues exceeding expenses and losses referring to expenses exceeding revenues.

Capital Interest

The share of ownership in a company or its assets, particularly reflecting the amount invested by owners or shareholders.

Capital Balances

The amounts recorded in the equity section of a company's balance sheet or partnership's accounts, representing the owners' stakes.