Does the warranty cost estimate appear accurate

Reference no: EM132092206

Question: Accounting for Warranty Liabilities Hugo Watch Company, based in Livingston, Montana, sold $10,000 of watches in January under a six month warranty. The cost of warranty repairs is estimated to be 5 percent of the sales price. In February and March, customers returned watches for repair under warranty. Hugo paid $480 for a repair company to perform this work. Prepare the journal entries and show the related accounting equation effects related to

(a) the estimated liability for warranty costs and

(b) the payment for watch repairs.

Does the warranty cost estimate appear accurate? If not, what should Hugo Watch do?

Reference no: EM132092206

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