Acc210 Week 6 Problem 6 - Francesca Funque's Frayed Fashions

Application Problem 6

On June 1, 2007 Francesca Funque's Frayed Fashions began selling fringed T-shirts for $40 each. The shirt comes with a 30-day warranty against unraveling. When a customer brings back an unraveled shirt Francesca gives the customer a new shirt (no questions asked about the events that led to the unraveling). The company uses the perpetual inventory method and its cost is $10 for each shirt. It is expected that 10% of the shirts sold will be returned for unraveling. The following transactions and events occurred:

2007
Nov. 10 Sold 180 shirts for $7,200 cash.
30 Recognized warranty expense for June with an adjusting entry.
Dec. 3 Replaced 15 shirts that were returned under the warranty.
15 Sold 220 shirts for $8,800 cash.
29 Replaced 20 shirts that were returned under the warranty.
31 Recognized warranty expense for July with an adjusting entry.

2008
Jan. 5 Sold 120 shirts for $4,800 cash.
16 Replaced 10 shirts that were returned under the warranty.
31 Recognized warranty expense related to January sales with an adjusting entry.

Required
1. Prepare journal entries to record these transactions and adjustments for 2007 and 2008.
2. How much warranty expense is reported for November 2007 and December 2007?
3. How much warranty expense is reported for January 2008?
4. What is the balance of the Estimated Warranty Liability account as of December 31, 2007?
5. What is the balance of the Estimated Warranty Liability account as of January 31, 2008?
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