Question

Bramble Company sells a machine for $7,080 with a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the company sells 580 machines in 2017 (warranty expense is incurred half in 2017 and half in 2018). As a result of product testing, the company estimates that the warranty cost is $430 per machine ($190 parts and 5240 labor). Use "Inventory" account to record the warranty expense. Assuming that actual warranty costs are incurred exactly as estimated, what journal entries would be made relative to the following facts? Sale of machinery and warranty expense incurred in 2017. (If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit Cash Sales Revenue (To record sale) Warranty Expense Salaries and Wages Payable Inventory (To record warranty expense) Warranty accrual on December 31, 2017. (If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit No Entry No Entry Warranty costs incurred in 2018. (If no entry is required, select "No Entry for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit Warranty Expense Salaries and Wages Payable Inventory What amount, if any, is disclosed in the balance sheet as a liability for future warranty costs as of December 31, 2017? Warranty liability

Answer 1

Answer:

S.No.	Accounts titles and Explanation	Debit ($)	Credit ($)
A.	Cash	4,106,400
	Sales revenue ($7080*580)		4,106,400
	Warranty expense [(580*$430) / 2]	124,700
	Inventory [(580*$190)/2]		55,100
	Salary and wages payable [(580*$240)/2]		69,600
B.	Warranty expense	124,700
	Warranty liability [(580*$430) / 2]		124,700
C.	Warranty expense [(580*$430) / 2]	124,700
	Inventory [(580*$190) / 2]		55,100
	Salary and wages payable [(580*$240) / 2]		69,600

D. Warranty liability - $124,700