Question

Julia Used Cars offers a one year warranty from the date of sale on all cars itsells. From historic data, Bill Jula estimates that on average cach car will require the company to incur warranty cost of $820. The cars sold for an average of 2.00h The following activities occurred during 2017 Feb 23 20 Sold five cars Sold 10 cars Incurred warranty costs of $3,000 on four cars sold in 2016 Soldeght cars Incurred warranty costs of $5,000 on five cars sold in 2016 Incurred warranty costs of $8 000 on one car sold in 2016 Sold twelve cars 14 22 Assume that the breakdown of warranty costs is 40% parts and 60% wages (paid in cash. Based on this information which of the following journal entries would be made on September 1? 5000 Warranty Expense Warranty Liability 5.000 5.000 Warranty Expense Cash Parts 3.000 2.000 3.000 2000 Cash Parts Warranty Liability 5000 Warranty Liability 5000 2000 Parts

Answer 1

	Dr.	Cr.
Warranty liability	5000
Cash ( 5000 * 60% )		3000
Parts ( 5000 * 40% )		2000