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What is the ending value of warranty payable reported

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Reference no: EM133166813

Question - Beach Bum Surfing started the year 2020 with $17,500 of Warranty Payable. During 2020 it spent $10,550 in cash to satisfy warranty claims. Beach Bum Surfing made $125,000 of sales in 2020 and it estimates that warranty costs are 10% of sales.

Required -

a. What are the financial statement effects of warranty expense recognition in 2020?

b. What is the ending value of Warranty Payable reported on the 2020 Balance Sheet?

c. If instead Beach Bum Surfing followed the policy of recording the warranty expense on the Income Statement only when the claim is satisfied, what would be the impact on the Pre-tax Income and on Cash Flows in 2020 (give both direction and amount)?

Reference no: EM133166813

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