
Concept explainers
1.
Prepare
1.

Explanation of Solution
Warranty expense: Warranty expenses are those costs that a business expects to or has already incurred for the repair or replacement of its goods that it has sold.
Prepare journal entries to record these transactions and adjustments of Company L for 2015 and 2016.
Date | Account title and explanation | Post ref. | Debit ($) | Credit ($) |
2015 | ||||
November 16 | Cash | 2,500 | ||
Sales | 2,500 | |||
(To record the sale of coffee grinders for cash.) | ||||
November 16 | Cost of Goods Sold | 1,200 | ||
Merchandise Inventory | 1,200 | |||
(To Record the cost of goods sold on November 16) | ||||
November 30 | Warranty Expense | 250 | ||
Estimated Warranty Liability | 250 | |||
(To record the coffee grinder warranty expense and the liability at 10% of selling price) | ||||
December 12 | Estimated Warranty Liability | 144 | ||
Merchandise Inventory | 144 | |||
(To record the cost of warranty replacements) | ||||
December 18 | Cash | 10,000 | ||
Sales | 10,000 | |||
(To record the sale of coffee grinders for cash) | ||||
December 18 | Cost of Goods Sold | 4,800 | ||
Merchandise Inventory | 4,800 | |||
(To record the cost of goods sold on December 18) | ||||
December 28 | Estimated Warranty Liability | 408 | ||
Merchandise Inventory | 408 | |||
(To record cost of coffee grinder returned under warranty replacements) | ||||
December 31 | Warranty Expense | 1,000 | ||
Estimated Warranty Liability | 1,000 | |||
(To record the coffee grinder warranty expense and the liability at 10% of selling price) | ||||
2016 | ||||
January 07 | Cash | 2,000 | ||
Sales | 2,000 | |||
(To record the sale of coffee grinders for cash) | ||||
January 07 | Cost of Goods Sold | 960 | ||
Merchandise Inventory | 960 | |||
( To record the cost of goods sold on January 07 ) | ||||
January 21 | Estimated Warranty Liability | 864 | ||
Merchandise Inventory | 864 | |||
(To record cost of coffee grinder warranty replacements.) | ||||
January 31 | Warranty Expense | 200 | ||
Estimated Warranty Liability | 200 | |||
(To record the coffee grinder warranty expense and the liability at 10% of selling price) |
Table (1)
2.
Determine the warranty expense that would be reported for November 2015 and for December 2015.
2.

Explanation of Solution
Warranty expense: Warranty expenses are those costs that a business expects to or has already incurred for the repair or replacement of its goods that it has sold.
Compute the warranty expense that would be reported for November 2015 and for December 2015.
Warranty expense for November 2015 and December 2015 | |||
Particulars | Sales | Percent | Warranty Expense |
November | $2,500 | 10% | $250 |
December | $10,000 | 10% | $1,000 |
Total | $12,500 | $1,250 |
Table (2)
The warranty expense for November 2015 and December 2015 is $250 and $1,000 respectively.
3.
Compute the warranty expense that would be reported for January 2016.
3.

Explanation of Solution
Warranty expense: Warranty expenses are those costs that a business expects to or has already incurred for the repair or replacement of its goods that it has sold.
Determine the warranty expense for January 2016.
Warranty expense for November 2016 | |
Particulars | Amount |
Sales in January | $2,000 |
Warranty percent | 10% |
Warranty expense | $200 |
Table (3)
The warranty expense for January 2016 is $200.
4.
Compute the balance of estimated warranty liability account as of December 31, 2015.
4.

Explanation of Solution
Estimated liability: Estimated liability is an amount of debt or obligation which is valued at a later date, the amount of debt to be incurred is uncertain, but they are capable of being reasonably estimated.
Determine the balance of estimated warranty liability account as of December 31, 2015.
Balance of estimated liability as of December 31, 2015 | |
Particulars | Amount |
Warranty expense for November | $250 |
Warranty expense for December | $1,000 |
Less: Cost of replacing items in December | ($552) |
Estimated Warranty Liability balance as of December 2015 | $698 |
Table (3)
The estimated warranty liability balance as of December 2015 is $698.
5.
Compute the balance of estimated warranty liability account as of January 31, 2016.
5.

Explanation of Solution
Estimated liability: Estimated liability is an amount of debt or obligation which is valued at a later date, the amount of debt to be incurred is uncertain, but they are capable of being reasonably estimated.
Determine the balance of estimated warranty liability account as of January 31, 2016.
Balance of estimated liability as of January 31, 2016 | |
Particulars | Amount |
Beginning balance | $698 |
Warranty expense for January | $200 |
Less: Cost of replacing items in January | ($864) |
Estimated Warranty Liability balance as of December 2015 | $34 |
Table (3)
The estimated warranty liability balance as of January 31, 2016is $34.
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Chapter 9 Solutions
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