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In 2018, Cap City Inc. introduced a new line of televisions that carry a two-year warranty...

In 2018, Cap City Inc. introduced a new line of televisions that carry a two-year warranty against manufacturer's defects. Based on past experience with similar products, warranty costs are expected to be approximately 1% of sales during the first year of the warranty and approximately an additional 3% of sales during the second year of the warranty. Sales were $6,900,000 for the first year of the product's life and actual warranty expenditures were $38,000. Assume that all sales are on credit. Required: 1. Prepare journal entries to summarize the sales and any aspects of the warranty for 2018. 2. What amount should Cap City report as a liability at December 31, 2018?

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Journal Entries Transaction Account Titles and Explanation Debit Credit Accounts Receivable S6,900,000 Sales $6,900,000 To record sales on credit Warranty expense refer working Note below ] $276,000 Estimated warranty liability $276,000 To record accrued warranty expenses for the year I Estimated warranty liability S38,000 Cash $38,000 To record the actual warranty expense Working Notes-Calculation of accrued warranty expenses Sales during year 1 $6,900,000 >given in question Total expected warranty cost for the products sold in year-(1% + 3%) of sales -4% of sales -$6,900,000 x 4% -$276,000 Requiremen Amount Estimated liability Less: Actual Expenditures Balancc Dcc. 31, 2018 $276,000 (38,000) S238.000 Amount Cap City would report as a liability at December 31, 2018 $238,000

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