Question

On November 10, 2017, Singh Electronics began to buy and resell scanners for $52 each. Singh uses the perpetual system to account for inventories. The scanners are covered under a warranty that requires the company to replace any non-working scanner within 90 days. When a scanner is returned, the company simply throws it away and mails a new one from inventory to the customer. The company's cost for a new scanner is only $32. Singh estimates warranty costs based on 12% of the number of units sold. The following transactions occurred in 2017 and 2018 (ignore GST and PST) 2017 15 Sold 3,500 scanners for $182,000 cash 30 Recognized warranty expense for November with an adjusting entry Nov. Dec. 8 Replaced 130 scanners that were returned under the warranty 15 Sold 7,500 scanners 29 Replaced 36 scanners that were returned under the warranty. 31 Recognized warranty exp ense for December with an adjusting entry 2018 Jan. 14 Sold 375 scanners 20 Replaced 48 scanners that were returned under the warranty 31 Recognized warranty expense for January with an adjusting entry Required 1. How much warranty expense should be reported for November and December 2017? Warranty Expense November December Total 0 2. How much warranty expense should be reported for January 2018? (Round your intermediate calculations and final answer to the nearest whole number.) Warranty expense

Answer 1

Req 1.
November month:
Warranty expense for Nov:
Sales units			3500
Cost of Scanner per unit			32
Total cost of Scanner sold			112000
Estimated Warranty cost			12%
Estimated warranty expenses for Nov			13440
December Month:
Sales units			7500
Cost of Scanner per unit			32
Total cost of Scanner sold			240000
Estimated Warranty cost			12%
Estimated warranty expenses for Dec			28800
Req 2.
Warranty expenses for Jan:
Sales units			375
Cost of Scanner per unit			32
Total cost of Scanner sold			12000
Estimated Warranty cost			12%
Estimated warranty expenses for Jan			1440
Req 3.
Estimated Warranty liability for Dec:
Total Warranty expense for Nov and Dec				42240
(it is total warranty liability) (13440+28800)
Less: Warranty expenses incurred in 2 months				5312
(130+36) scanners replaced @ 32 per scanner
Estimated Warranty liability for Dec:				36928
Req 4.
Estimated Warranty liability for Jan:
Estimated warranty liability for Dec				36928
Add: Warranty expense for Jan				1440
Less: Expenses incurred in replacing scanner				1536
	(48 scanners @ 32)
Estimated Warranty liability for Jan:				36832
Req 5.
Journal entries:
Date	Accounts title and explanations				Debit $	Credit $
15.11.17	Cash account				182000
	Sales revenue		(3500*52)			182000
	Cost of goods sold				112000
	Merchandise inventory (3500*32)					112000
30.11.17	Warranty expenses				13440
	Estimated warranty liabilities					13440
08.12.17	Estimated Warranty liabilities				4160
	Merchandise inventory (130*32)					4160
15.12.17	Cash account				390000
	Sales revenue		(7500*52)			390000
	Cost of goods sold				240000
	Merchandise inventory (7500*32)					240000
29.12.17	Estimated warranty liabilities				1152
	Merchandise inventory (36*32)					1152
31.12.17	Warranty expenses				28800
	Estimated warranty liabilities					28800
14.01.18	Cash account				19500
	Sales revenue		(375*52)			19500
	Cost of goods sold				12000
	Merchandise inventory (375*32)					12000
20.01.18	Estimated warranty liabilities				1536
	Merchandise inventory (48*32)					1536
31.01.18	Warranty expenses				1440
	Estimated warranty liabilities					1440

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