Computer Wholesalers restores and resells notebook computers. It originally acquires the notebook...

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 6% of sales. Sales for the month of December are $410,000. Actual warranty expenditures in January of the following year were $13,500.

1. Does this situation represent a contingent liability?

Yes

No

1. Record the contingent liabilities for warranties.

4. What is the balance in the warranty liability account after the entries in Part 2 and 3?

Warranty liability _____

Contingent Liability

Contingent Liability refers to an account being used to anticipate any future cash spending of a firm for a certain expense, the amount of which is easily determinable. Some transactions that fall under this category are: Loss from Lawsuit, Warranty Repairs, and etc.

Answer and Explanation: 1

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1. Does this situation represent a contingent liability?

Yes Warranty Expense and Liability account is generally recognized immediately following a...

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Contingent Liabilities: Definition & Examples

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Chapter 10 / Lesson 4
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Contingent liabilities are circumstances where a company may owe obligations to other parties. Explore three common types of contingent liabilities: product recalls, pending lawsuits, and changes in legislation.


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