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Question - At the beginning of 2013, Scarlet Industries began offering a three-year warranty on its products. The warranty program was expected to cost Scarlet 2% of net sales, approximately equally over the three-year warranty period. Net sales made under warranty in 2013 were $270 million. Thirteen percent of the units sold were returned in 2013 and repaired or replaced at a cost of $2 million. This amount was debited to warranty expense as incurred.
Required - Prepare the appropriate adjusting entry to adjust warranty expense on December 31, 2013. Show calculations.
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To reiterate, the case study will focus on analyzing a publically traded organizations financial statements - horizontal analysis, vertical analysis, or selected ratio analyses should be used to analyze the organization.
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