Grain Company Sells a Product for $760

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 2015. Based on analysis of past warranty records, Grain estimates that repairs will average 6% of total sales.
REQUIRED:
1. Identify the accounting equation effects for the transaction of the estimated liability.
2. Assume that during 2015, products under warranty must be repaired using repair parts from inventory costing
$49,600. Identify the accounting equation effects for the transaction to repair products.
3. Assume that the balance of the Estimated Liabilities for Warranties account as of the beginning of 2015 was
$1,700. Calculate the balance of the account as of the end of 2015.