Essay
In 2017,Johnson's Cycles Inc.sold 5,000 mountain bikes.For the first time,Johnson offered an in-store,no-charge,two-year warranty on each bike sold.Company management estimates that the average cost of providing the warranty is $8 per unit in the first year of coverage and $11 per unit in the second year.
Johnson's warranty-related expenditures totaled $36,500 for labor costs during 2017.
Requirements:
a.Prepare the summary journal entry to recognize Johnson's warranty expense in 2017.
b.Prepare the summary journal entry to recognize the warranty service provided in 2017.
c.Determine the total provision for warranty obligations that will be reported on the company's balance sheet at year-end.Assuming that all sales transactions and warranty service took place on the last day of the year,how much of the warranty obligation will be classified as a current liability? As a non-current liability?
Correct Answer:
Verified
Correct Answer:
Verified
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