Chisholm Appliances Is a Relatively New Producer of Commercial Grade

question 54

Essay

Chisholm Appliances is a relatively new producer of commercial grade appliances.To enhance the competitiveness of its products,on July 1,2018,the company introduced a warranty against defects for 12 months from the date of installation.
No warranty claims were received in 2018.However,in February 2020,when the auditors examined the records for the year ended December 31,2019,they noted $255,000 of warranty claims relating to 2019 recorded as miscellaneous expense.The auditors requested the company to accrue for the expected warranty costs retrospectively to 2018.
The auditors agreed with Chisholm's management that the estimated warranty fulfillment costs should be 0.5% of revenue.The company recorded revenue of $55,598,000 in 2018 and $56,213,000 in 2019.The company's tax rate is 30%.The general ledger for 2019 has not yet been closed.
Required:
Record any adjusting journal entries required to correct Chisholm's books.Include the effect of income taxes.

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Definitions:

Aggregate Demand

The total demand for goods and services within an economy at a given overall price level and in a given time period.

Short-run Phillips Curve

A graphical representation showing the inverse relationship between the rate of unemployment and the rate of inflation in an economy over the short term.

Money Supply Growth

The rate at which the amount of money available in an economy increases, which can affect inflation and economic stability.

Long-run Equilibrium

Long-run equilibrium is the condition in which all factors of production and inputs in a market are fully adjusted, prices have stabilized, and there is no tendency for change.