Grain Company Sells a Product for $760

question 125

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 2017. Based on analysis of past warranty records, Grain estimates that repairs will average 6% of total sales.

Required
1. Analyze the impact of the journal entry to record the estimated liability.
2. Assume that during 2017 products under warranty must be repaired using repair parts from inventory costing $49,600. Analyze the impact of the journal entry to record the repair of products.
3. Assume that the balance of the Estimated Liabilities for Warranties account as of the beginning of 2017 was $1,700. Calculate the balance of the account as of the end of 2017.

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Definitions:

Consulting Firm

A professional service organization that provides expert advice to businesses and organizations across a diverse range of industries and sectors.

Service Company

A business that provides intangible products or services to customers or clients, as opposed to selling physical goods.

Purchasing Cycle

A sequence of steps or procedures undertaken by a business to acquire goods or services from suppliers.

Merchandising Company

A business that purchases finished products and sells them to consumers without changing the physical form of the goods.