Question

Computer Wholesalers restores and resells notebook computers. It originally acquires the notebook computers from corporations upgrading their computer systems, and it backs each notebook it sells with a 90-day warranty against defects. Based on previous experience, Computer Wholesalers expects warranty costs to be approximately 4% of sales. Sales for the month of December are $460,000. Actual warranty expenditures in January of the following year were $16,000.

1. Does this situation represent a contingent liability?

2. & 3. Record the necessary entries in the Journal Entry Worksheet below. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Record the contingent liability for warranties.

Record the actual warranty expenditures.

4. What is the balance in the Warranty Liability account after the entries in Part 2 and 3?

Answer 1