Question

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 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.

View transaction list Journal entry worksheet Record the sale of a copier for $11,000 cash. Note: Enter debits before credits. General Journal Debit Credit Date Aug 16 Record entry Clear entry View general journal

Answer 1

Solution 1) Warranty Experse = 550 w. totes! warranty experse is 5% of dollar Sales -- 5% X 11000 = 550 2) Estimated warranty Labelty = 550 Explanation on year and 31 st dec balance of leability will be same as expense Incurred as there is no repair in the year I so estimated leability will be 550. 3) Estimated warranty liability = 427 Explanation: Beginning balance = 550 less: Repast cost - 123 End balance of year 2 = 427 Date Journal Debit Credit 16 Aug Cash Dr To saler 11000 11000 16 Aug 5500 31 Dec Cost of good sold To merchandise delevery warranty experse Dr 550 To Estimated warranty leability I Estimated warranty reability 123 To Repairs parits Inventory 550 5 Tan X