Aqua Construction Installs Swimming Pools

question 120

Essay

Aqua Construction installs swimming pools. They calculate that warranty obligations are 5% of gross sales. For the year just ending Aqua's gross sales were $1,500,000. Due to previous quarter recognitions, the Warranty Liability account has a credit balance of $48,700. Determine the year's total warranty liability and journalize any necessary value to establish the year's liability at December 31st.

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Definitions:

Sale of Receivables

The process of selling outstanding invoices to a third party in order to receive immediate payment.

Allowance for Doubtful Accounts

An accounting estimate for the portion of accounts receivable that may not be collectible.

Bad Debt Expense

An expense account reflecting estimated uncollectible accounts receivable due to credit sales that are unlikely to be recovered.

Accounts Receivable

Funds owed to a business by its customers for goods or services delivered or used but not yet paid for.