LeMay Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4

boxtops from LeMay Frosted Flakes boxes and 1.00. The company estimates that 60%
of the boxtops will be redeemed. In 2022, the company sold 500,000 boxes of Frosted
Flakes and customers redeemed 220,000 boxtops receiving 55,000 bowls. If the bowls
cost LeMay Company 2.50 each, how much liability for outstanding premiums should be
recorded at the end of 2022?
a. 20,000
b. 30,000
c. 50,000
d. 70,000

Nance Company estimates its annual warranty expense as 4% of annual net sales. The
following data relate to the calendar year 2022:
Net sales 1,500,000
Warranty liability account
Balance, Dec. 31, 2022 10,000 debit before adjustment
Balance, Dec. 31, 2022 50,000 credit after adjustment

Which one of the following entries was made to record the 2022 estimated warranty
expense?
a. Warranty Expense ....................................................................... 60,000
Retained Earnings (prior-period adjustment) .....
10,000
Warranty Liability ................................................
50,000
b. Warranty Expense ....................................................................... 50,000
Retained Earnings (prior-period adjustment) ............... 10,000
Warranty Liability ................................................
60,000
c. Warranty Expense ....................................................................... 40,000
Warranty Liability 40,000
d. Warranty Expense ....................................................................... 60,000
Warranty Liability 60,000