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Concept Introduction:
Warranty Expense and Estimated Warranty Payable:
Warranty Expense refers to the cost which a business expects to incur or has already incurred for the repair or replacement of the goods sold.
Warranty Expense is calculated by using the following formula
Requirement 1
To determine:
Warranty Expense for the year 2017
Answer to Problem 10E
Solution:
Warranty Expense for the year 2017 = $ 240
Explanation of Solution
The above answer can be explained as
Given,
• Sales for the year 2017 = $ 6,000
• Estimated warranty payable (rate of sales) = 4 % of dollar sales
Thus, the warranty expense for the year 2017 has been determined.
Requirement 2
To determine:
Estimated warranty liability for this copier as of December 31, 2017
Answer to Problem 10E
Solution:
Estimated warranty liability for this copier as of December 31, 2017 = $ 240
Explanation of Solution
The estimated warranty liability for this copier as of December 31, 2017 is $ 240 as calculated above. The warranty expense for the year is transferred to Estimated warranty liability i.e. $ 240.
Thus, the estimated warranty liability for this copier as of December 31, 2017 has been determined.
Requirement 3
To determine:
Warranty expense for this copier for the year 2018
Answer to Problem 10E
Solution:
Warranty expense for this copier for the year 2018 = $ 0
Explanation of Solution
The above answer can be explained as under
The sale for this copier was made in the year 2017. In 2017, the warranty expense on this copier has been determined and recorded. Thus, the warranty expense for this copier is $ 0 for the year 2018.
Thus, the warranty expense for the year 2018 was $ 0.
Requirement 4
To determine:
Estimated warranty liability for this copier as of December 31, 2018
Answer to Problem 10E
Solution:
Estimated warranty liability for this copier as of December 31, 2018 = $ 31
Explanation of Solution
The above answer can be explained as under
Given,
• Warranty claims (repairs costs) for the copier sold in 2017 in the year 2018 = $ 209
• Estimated warranty liability, beginning = $ 240
Thus, the estimated warranty liability for this copier as of December 31, 2018 has been determined.
Requirement 5
To prepare:
a. Copier’s sales
b. The
c. Repairs that occur in November 2018
Answer to Problem 10E
Solution:
| Date | Accounts Titles and Descriptions | Debit | Credit |
| 2017 | |||
| Aug-16 | Cash | 6,000 | |
| Sales Revenue | 6,000 | ||
| (To record sale of copier) | |||
| Cost of goods sold | 4,800 | ||
| Merchandise Inventory | 4,800 | ||
| (To record cost of goods sold for the sales) | |||
| Dec-31 | Warranty Expense | 240 | |
| Estimated Warranty expense | 240 | ||
| (To record the warranty expense for the year) | |||
| 2018 | |||
| Nov-22 | Estimated Warranty expense | 209 | |
| Repair parts Inventory | 209 | ||
| (To record cost of inventory repaired) |
Explanation of Solution
The above journal entries can be explained as under
For the year 2017
Aug-16: The sales are recorded for cash for $ 6,000. Thus, cash is debited and sales revenue is credited with $ 6,000.
The cost of goods sold for the sales is recorded in the next entry for $ 4,800. Thus, cost of sales is debited and merchandise inventory is credited with $ 4,800.
Dec-31: The above entry can be explained as
Given,
• Sales for the year 2017 = $ 6,000
• Estimated warranty payable (rate of sales) = 4 % of dollar sales
The warranty expense is $ 240. It has been debited and estimated warranty payable has been credited.
For the year 2018
Nov-22: The repairs of copier is recorded for the sale made in 2018. Thus, estimated warranty liability is debited and Repair parts Inventory is credited with $ 209.
Thus, all the necessary journal entries have been made.
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