Grain Company Sells a Product for $760

question 171

Essay

Grain Company sells a product for $760. When the customer buys it, Grain provides a one-year warranty. Grain sold 1,500 products during 2015. Based on analysis of past warranty records, Grain estimates that repairs will average 6% of total sales.
REQUIRED:
1. Identify the accounting equation effects for the transaction of the estimated liability.
2. Assume that during 2015, products under warranty must be repaired using repair parts from inventory costing
$49,600. Identify the accounting equation effects for the transaction to repair products.
3. Assume that the balance of the Estimated Liabilities for Warranties account as of the beginning of 2015 was
$1,700. Calculate the balance of the account as of the end of 2015.

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Definitions:

Probability

measures the likelihood that an event will occur, expressed as a number between 0 and 1, where 0 means the event cannot happen and 1 means it is certain to happen.

Cumulative Net Profit

The total amount of profit after all expenses have been deducted, accumulated over a period of time.

Probability

The calculation of the probability of an event's occurrence, denoted by numbers between 0 and 1.

Tornado Chart

A type of bar chart where variables are displayed horizontally, typically showing the impact of variables in a sensitivity analysis.