Reference no: EM133011203

Question - VMR Company offers a basic manufacturer guarantee of satisfaction for any cars it sells for the first two years of the vehicle's life against defects. Estimates based on industry experience indicate warranty costs being incurred according to the below details:

Warranty Costs as a % of Sales in first 12 months following the sale 4%

Warranty Costs as a % of Sales in second 12 months following the sale 6%

Amount of Sales made in Year 20X1 $500,000

Assume COGS associated with these sales totaled the following, and we use perpetual inventory system $100,000

1. What is the journal entry to accrue for warranty expenses as of 12/31/20X1?

A. Debit Warranty Expense for $20,000, and Credit Warranty Liability for $20,000

B. Debit Warranty Expense for $50,000, and Credit Warranty Liability for $50,000

C. Debit Warranty Expense for $10,000, and Credit Warranty Liability for $10,000

D. Debit Warranty Expense for $40,000, and Credit Warranty Liability for $40,000

2. What is amount of Net Income for 20X1 after all journal entries including adjusting journal entries for accruals? Enter the amount as a positive number with no symbols.