Question

Whispering Company sells a machine for $6,720 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 620 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 $363 per machine ($158 parts and $205 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?

Part 2 Warranty accrual on December 31, 2017. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit eTextbook and Media PLEASE SHOW WORK

Account Titles and Explanation	Debit	Credit

Answer 1

The journal entries to be booked will be as under:

Date	Account Titles and Explanation	Debit ($)	Credit ($)	Workings
2017	Cash	41,66,400		620*6720
	Sales revenue		41,66,400
Dec 31 2017	Warranty expense	1,12,530		(620*363)/2
	Inventory		48,980	(620*158)/2
	Salary and wages payable		63,550	(620*205)/2
2018	Warranty expense	1,12,530
	Warranty liability		1,12,530	(620*363)/2
Dec 31 2018	Warranty expense	1,12,530		(620*363)/2
	Inventory		48,980	(620*158)/2
	Salary and wages payable		63,550	(620*205)/2

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