Question

Exercise 9-10 Warranty expense and liability computations and entries LO P4 Hitzu Co. sold a copier costing $6,500 with a two-year parts warranty to a customer on August 16, 2018, for $13,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2019, the copier requires on-site repairs that are completed the same day. The repairs cost $118 for materials taken from the repair parts inventory. These are the only repairs required in 2019 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 5% of dollar sales. It records warranty expense with an adjusting entry at the end of each year. 1. How much warranty expense does the company report in 2018 for this copler? 2. How much is the estimated warranty liability for this copier as of December 31, 2018? 3. How much warranty expense does the company report in 2019 for this copier? 4. How much is the estimated warranty liability for this copier as of December 31, 2019? 5. Prepare journal entries to record (a) the copler's sale; (b) the adjustment on December 31, 2018, to recognize the warranty expense; and the repairs that occur in November 2019 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 How much warranty expense does the company report in 2018 for this copler? Warranty expense Required )

Answer 1

Solution 1. Warranty expense for 2018 = 5% of dollar sale = $13000 x 5% = $ 650.00 Solution 2. The estimated warrany liabilty for this copier in 2018 will be the warranty expense of 2018 i.e, $ 650.00 Solution 3. Warranty expense in 2019 will not be recorded as it would be adjusted from the liabilty of $650 already created Solution 4. Estimated Warranty liabilty for 2019 Liability at Beginning Less: Reapair cost adjusted Estimated warranty Liab as on 2019 $ 650.00 $ 118.00 $ 532.00 Credit Solution 5. Journal Entries in the Book of Hitzu Co. Date Description Debit 16-08-2018 Accounts Receivable $ 650.00 Sales (To record the sale of copier) $ 650.00 31-12-2018 Warranty Expense $ 650.00 Estimated Warranty Liability (To record the Warranty expense $ 650.00 22-11-2019 Estimated Warranty Liability | $ 118.00 Inventory $ 118.00 (To record the cost of inventory used for repair)

In case of any doubt, please comment below