Question

 Hitzu Co. sold a copier (that costs $4,800) for $6,000 cash with a two-year parts warranty to a customer on August 16 of Year 1. Hitzu expects warranty costs to be 4% of dollar sales. It records warranty expense with an adjusting entry on December 31. On January 5 of Year 2, the copier requires on-site repairs that are completed the same day. The repairs cost $209 for materials taken from the repair parts inventory. These are the only repairs required in Year 2 for this copier.

 1. How much warranty expense does the company report for this copier in Year 1?

 2. How much is the estimated warranty liability for this copier as of December 31 of Year 1?

 3. How much is the estimated warranty liability for this copier as of December 31 of Year 2?

 4. Prepare journal entries to record (a) the copier's sale: (b) the adjustment to recognize the warranty expense on December 31 of Year 1, and (c) the repairs that occur on January 5 of Year 2

Answer 1

3) Estimated warranty liability for copier as of December 31 of Year 2 :

Estimated Warranty liability as of December 31, Year 1 - Cost of Repairs Undertaken

240 - 209 = 31

4)

3	Dec-31	Warranty expense	240
		Estimated Warranty Liability		240
4	Jan-05	Estimated Warranty Liability	209
		Repairs parts inventory		209