Easy Electronics Inc

question 14

Essay

Easy Electronics Inc. is a store specializing in electronic products. For the first time this year they offered a one-year warranty on all products sold in the store and sold gift cards. They estimate that the warranty costs should average 2% of sales (total sales of $8,000,000 in this past year) and by year end they had spent $40,000 on the program. For gift cards, they sold $25,000 worth during the year, but only $5,000 had been redeemed.
Instructions
The accountant has asked you to explain how these two new types of services should be recorded.

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Definitions:

Book Value

The net value of a company's assets, as recorded on the balance sheet, minus its liabilities and intangible assets.

Equity Capital

Funds raised by a company through the issuance of shares, representing ownership interest in the company.

Share Price

The current market price of a company's share, reflecting its perceived value by investors.

Book Value

The net value of a company's assets less its liabilities and intangible assets.