The entry to record the repairs that occur on January 5 is:
During December, Vixen Company sells $851,000 in merchandise that has a one-year warranty. Warranty expense is estimated at 4% of sales. On January 5 of the following year, the merchandise requires repairs that are completed the same day. The repairs cost $14,100 for materials taken from parts inventory. The entry to record the repairs that occur on January 5 is:
The repair cost for the merchandise that occurred on January 5 is covered by the warranty, and therefore, it should be recorded as a warranty expense. The entry to record the repairs on January 5 is as follows:
1. Recording the warranty expense for the merchandise sold in December:
Debit: Warranty Expense = 851,000 x 4% = $34,040
Credit: Warranty Liability = $34,040
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