Essay: Warranty Costs

Sample Essay

The cost of merchandise inventory is expensed in the income statement when goods are sold and as inventory is sold in 2008 it will be expensed in 2008.

B.

Warranty costs are also expensed once goods are sold and as the goods are sold in 2007 the warranty costs will be expensed in 2007.

C.

The bad debts on future uncollectible accounts are also expensed in the year that sales are made and these bad debts will also be expensed in 2007 as they are related to sales of 2007.

D.

There are differing principles for expense of research and development. Research and development costs can be capitalized under International Financial Reporting Standards but they are expensed in they year they are incurred under Generally Accepted Accounting Principles.

13-4

A.

The amounts of accounts receivable and allowance for doubtful accounts can be computed by preparing the ledgers for both of these accounts.

Accounts Receivable

The company estimates that 10% of the year end balance of accounts receivable will be uncollectible. The bad debts expense is calculated by using the percentage and implementing it in allowance for doubtful accounts ledger.