Question

Merritt Equipment Company sells computers for $1,500 each and also gives each customer a 1-year warranty that requires the company to perform periodic services and to replace defective parts. During 2020, the company sold 1,200 computers.

Based on past experience, the company has estimated the total warranty costs as $40 for parts and $60 for labor per unit.

In 2020, Merritt incurred actual warranty costs of $8,000 for parts and $12,000 for labor. In 2021, Merritt incurred actual warranty costs relative to 2020 computer sales of $16,000 for parts and $24,000 for labor.

Required:

Record the journal entries to reflect the transactions for the sale of computers, the related warranty costs (in 2020 and 2021), and the December 31, 2020 accrual.

Answer 1

Solution - -Credito). Date 2020 1,800,000 20,000 2020 8000 12,000 Joonnal entries of Merortl Equipment Company De bit (s) Account title & Explanation 1,800,000 Accounts Receivable TO Sales (1200x1500) (To Record sale for the year 2020) Estimated liability under warranty TO Inventory - To Accured payroll ( to Warranty exposues incurred) Warranty expenses (40x1200] + [60x1200] | 120,000 TO Estimated liability under warranty 120,000 (To Recand estimented warranty Gability) Estimated liability under warranty To Inventory 16,000 to Accused paysall 24,000 (70 Recred for warranty expedices included) 2020 HO,000 2021