Ninatori Fashion Supply Corp. offers product warranties on its line of bedroom f

Question

Ninatori Fashion Supply Corp. offers product warranties on its line of bedroom furniture. Under the warranties, the Company agrees to pay the cost to repair any damage to the furniture (other than from abuse) that occurs during the warranty period, a two-year period from the date of purchase by the consumer. Based on product testing, Ninatori Fashion Supply Corp. estimated that 1.25% of the units sold in prior years would suffer damage during the warranty period that would cost $40 per damaged unit to repair. At December 31, 2016, the Company determined that the estimates were also applicable to the 49,800 units sold with the warranties in 2016. Prepare the necessary adjusting entry at December 31, 2016 to properly recognize amounts relating to the product warranties under GAAP. In its unadjusted trial balance at December 31, 2016, Ninatori Fashion Supply Corp. reported Unearned Rent Revenue with a balance of $132,600 that resulted from two leases signed with tenants during 2016: On May 8, 2015, the Company agreed to lease the 5th floor of its office building to the consulting firm of Tutuola and Munch for one year beginning on June 1, 2016. The Company received $87,600 cash from the new tenant as an advance payment in full of rent under the lease. Tutuola and Munch moved into the leased space on June 1 and used it throughout the remainder of 2016. The Company received $45,000 cash from Benson and Stabler LLP on December 31 as the advance payment of rent for the first six months of a one-year agreement to lease the 6th floor of its office building beginning on January 15, 2017. Prepare the necessary adjusting entry at December 31, 2016 to properly recognize amounts relating to the leases under GAAP.

Explanation / Answer

Ans 14:

Dec 31, 2016 Debit Credit

Warranty exp *24900

Warranty Liability. 24900

*=49800*1.25%*40

  

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