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Exercise 9-6A (Algo) Effect of warranties on income and cash flow LO 9-4 ...

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Accounting

Exercise 9-6A (Algo) Effect of warranties on income and cash flow LO 9-4
To support herself while attending school, Daun Deloch sold stereo systems to other students. During the first year of operations, Daun purchased the stereo systems for $260,000 and sold them for $370,000 cash. She provided her customers with a one-year warranty against defects in parts and labor. Based on industry standards, she estimated that warranty claims would amount to 2 percent of sales. During the year, she paid $4,020 cash to replace a defective tuner.
Required
a. Prepare an income statement and statement of cash flows for Dauns first year of operation.
b. Based on the information given, what is Dauns total warranties liability at the end of the accounting period?

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