Hardin Widget Manufacturing Began Operations in January 2018

question 59

Essay

Hardin Widget Manufacturing began operations in January 2018. Hardin sells widgets that carry a two-year manufacturer's warranty against defects in workmanship. Hardin's management projects that 2% of the widgets will require repair during the first year of the warranty while approximately 6% will require repair during the second year of the warranty. The widgets sell for $400 each. The average cost to repair a widget is $50. The company sells 60% of the widgets to retail customers who must pay a 6% sales tax. Sales and warranty information for 2018 and 2019 are as follows:
2018: Sold 200 widgets on account; incurred warranty expenditures of $300.
2019: Sold 300 widgets on account; actual warranty expenditures were $500.
Required:
1. Prepare journal entries that summarize the sales and any aspects of the warranty for 2018.
2. Prepare journal entries that summarize the sales and any aspects of the warranty for 2019.

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Definitions:

Fair-Value

Fair-Value is the estimated market value of an asset or liability, based on current market conditions rather than historical cost.

Acquisition Method

A set of procedures used in accounting to consolidate the financial statements of two companies in the event of a merger or acquisition.

Pre-Acquisition Income

The earnings generated by a company before it was acquired by another entity.

Investment Adjustment

An investment adjustment refers to changes made to the carrying amount of an investment due to factors such as dividends received or changes in the investee's equity.