Question

We are hired as consultants to assist Arctica Co. in accounting for its warranty expenses. Arctica offers a one-year warranty covering parts on each snowmobile it sells. The following Tableau Dashboard is provided to assist us.

Estimated Warranty Expense vs. Actual Warranty Claims

Purple Graph

$25,000 BIBIRIIIIIIIIIIIIIIIIIIIIIII $20,000 Actual Warranty Claims Estimated Warranty Expense $15,000 $10,000 $5,000 Šo 4 Years Ago... 3 Years Ago...... 2 Years Ago........ ... 1 Year Ago...

Actual warranty claim: $17,660 (1 year ago)

Actual warranty claim: $21,660 (2 years ago)

Actual warranty claim: $13,070 (3 years ago)

Actual warranty claim: $12,122 (4 years ago)

Orange Graph

Estimated warranty expense: $14,800 (1 year ago)

Estimated warranty expense: $18,560 (2 years ago)

Estimated warranty expense: $11,120 (3 years ago)

Estimated warranty expense: $18,839 (4 years ago)

Estimated Warranty Expense Percentage by Model Current Year Sales by Model

Puma Currently year sale: $60,000

Lynx Currently year sales: $80,000

Jag Currently year sales: $150,000

1. How much total estimated warranty expense does Arctica report for the current year?
2. Record the adjusting entry at year-end of the current year to recognize warranty expense.
3. A customer brings in a snowmobile for warranty repairs on January 15 of the following year and the replacement parts cost $700. Record the journal entry for this repair.

Options for General Journal

• Accounts payable
• Accrued payroll payable
• Bonus payable
• Cash
• Cost of goods sold
• Deferred income tax liability
• Earned services revenue
• Earned ticket revenue
• Employee benefits plan payable
• Employee bonus expense
• Employee fed. inc. taxes payable
• Employee life insurance payable
• Employee medical insurance payable
• Employee union dues payable
• Estimated warranty liability
• Federal unemployment taxes payable
• FICA—Medicare taxes payable
• FICA—Social sec. taxes payable
• Income taxes expense
• Income taxes payable
• Interest expense
• Interest payable
• Merchandise inventory
• Notes payable
• Payroll taxes expense
• Repair parts inventory
• Salaries expense
• Salaries payable
• Sales
• Sales salaries expense
• Sales taxes payable
• State unemployment taxes payable
• Unearned services revenue
• Unearned ticket revenue
• Vacation benefits expense
• Vacation benefits payable
• Wages expense
• Warranty expense

A customer brings in a snowmobile for warranty repairs on January 15 of the following year and the replacement parts cost $700. Record the journal entry for this repair.

Options for General Journal

• Accounts payable
• Accrued payroll payable
• Bonus payable
• Cash
• Cost of goods sold
• Deferred income tax liability
• Earned services revenue
• Earned ticket revenue
• Employee benefits plan payable
• Employee bonus expense
• Employee fed. inc. taxes payable
• Employee life insurance payable
• Employee medical insurance payable
• Employee union dues payable
• Estimated warranty liability
• Federal unemployment taxes payable
• FICA—Medicare taxes payable
• FICA—Social sec. taxes payable
• Income taxes expense
• Income taxes payable
• Interest expense
• Interest payable
• Merchandise inventory
• Notes payable
• Payroll taxes expense
• Repair parts inventory
• Salaries expense
• Salaries payable
• Sales
• Sales salaries expense
• Sales taxes payable
• State unemployment taxes payable
• Unearned services revenue
• Unearned ticket revenue
• Vacation benefits expense
• Vacation benefits payable
• Wages expense
• Warranty expense

Answer 1

1) Total Estimated warranty expense= Puma sale *7%+Lynx sale *4% + Jag sale * 6%
60000*7% +80000*4% + 150000*6% = $16400
2) Recording of the adjusting entry at year end of the current year:
Date	Accounts Title	Debit $	Credit $
Dec 31, CY	Warranty expense	16400
	Estimated warranty liability		16400
	(warranty liability recognised for the current year)
3) Entry to record the cost of warranty repairs:
Date	Accounts Title	Debit $	Credit $
Jan 15, NY	Estimated warranty liability	700
	Cash		700
	(warranty repairs for the customer recorded)

Answer 2

My equation had 105,000 as the pink. I think yours may be a typo. So then, 1. would be 13700 2. Both the number would also be 13700 and 3. it would be repair parts inventory not cash