Hitzu Co. sold a copier (that costs $5,500) for $11,000 cash
with a two-year parts warranty to a customer on August 16 of Year
1. Hitzu expects warranty costs to be 6% 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 $109 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.
1) warranty expense in year 1 (11000*6%) = 660 | |||||
2) estimated warranty liability 31 december of year1 | |||||
warranty liability will be same warranty expenses | |||||
estimated warranty liability = 660 | |||||
3) warranty liability year 2 | |||||
estimated warranty liability of year 1 | 660 | ||||
less: cost of repair | -109 | ||||
estimated warranty liability of year 2 | 551 | ||||
4) Journal entries | |||||
date | Particulars | debit | credit | ||
16-Aug | cash | 11000 | |||
sale | 11000 | ||||
16-Aug | cost of goods sold | 5500 | |||
merchandise delivery | 5500 | ||||
31-Dec | warranty expenses | 660 | |||
estimated warranty liability | 660 | ||||
05-Jan | estimated warranty liability | 109 | |||
repair parts inventory | 109 |
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Hitzu Co. sold a copier (that costs $5,500) for $11,000 cash with a two-year parts warranty...
Hitzu Co. sold a copier (that costs $5,500) for $11,000 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 $130 for materials taken from the repair parts inventory. These are the only repairs...
Hitzu Co. sold a copier (that costs $5,500) for $11,000 cash with a two-year parts warranty to a customer on August 16 of Year 1. Hitzu expects warranty costs to be 5% 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 $137 for materials taken from the repair parts inventory. These are the only repairs...
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Hitzu Co. sold a copier costing $4,500 with a two-year parts warranty to a customer on August 16, 2017, for $9,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2018, the copier requires on-site repairs that are completed the same day. The repairs cost $131 for materials taken from the repair parts inventory. These are the only repairs required in 2018 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 4% of dollar...
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