question archive A company sells its product subject to a warranty that covers the cost of parts for repairs during the six months after the date of sale
A company sells its product subject to a warranty that covers the cost of parts for repairs during the six months after the date of sale
Subject:AccountingPrice: Bought3
A company sells its product subject to a warranty that covers the cost of parts for repairs during the six months after the date of sale. Warranty costs are estimated to be 6% of sales. During the month of June, the company performed warranty work and used RM12,000 worth of parts to do the warranty work. Sales for June amounted to RM450 000. Required: i. Give TWO (2) differences between current liability and long-term liability. (2 marks) ii. Record the warranty expense for the month of June. (3 marks) ifi. Record the costs of the warranty work completed in June. (3 marks) iv. If the Estimated Warranty Liability account had a credit balance of RM10,000 on May 31, what is the account balance at June 30? (2 marks)
b. The units of an item available for sale during the year were as follows: Date Particulars Units Cost per unit 1 Jan Inventory 20 units RM120 17 Feb Purchase 50 units RM138 21 July Purchase 60 units RM156 23 Nov Purchase 30 units RM165 There are 50 units of the item in the physical inventory at 31 December. The periodic inventory system is used. 6
Required: i. Determine cost of merchandise available for sale and ending inventory cost by using the average cost methods. (4 marks) ii. Why would management prefer to use LIFO over FIFO in periods of rising prices? (2 marks) ili. In each space below, place the correct sign (< / > / =) for each comparison, assuming of periods of rising prices. Sign (< / > /=) (a) FIFO inventory LIFO inventory (b) FIFO cost of goods sold LIFO cost of goods sold (C) FIFO net income LIFO net income (d) FIFO income tax LIFO income tax (2 marks)
