Reference no: EM133109710
Question - Bengals Appliances, a private family business, sells dishwashers for $1,250 each, which includes a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2020, Bengals sold 700 dishwashers on account. Based on past experience, the company has estimated the total 2-year warranty costs per unit sold are at $24 for parts and $20 for labor, per unit. (Assume sales all occur at December 31, 2020.)
In 2021, Bengals incurred actual warranty costs related to 2020 dishwasher sales of $6,000 for parts and $9,500 for labor.
Required -
a) Using the assurance (expense) warranty approach, provide all necessary entries to reflect the above transactions for 2020 and 2021.
b) Using the cash approach, what are the warranty expense balances for 2020 and 201 and prepare the entries.
c) As the CFO, would you recommend Bengals using the cash approach, and why?
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