Question

Kingbird Company sells a machine for $6,840 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 $384 per machine ($170 parts and $214 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? Sale of machinery and warranty expense incurred in 2017. (If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit (To record sale) (To record warranty expense) Warranty accrual on December 31, 2017. (If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account tities are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit Warranty costs incurred in 2018. (If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit What amount, if any, is disclosed in the balance sheet as a liability for future warranty costs as of December 31, 2017? Warranty liability

Answer 1

	account titles and explanation				Debit	Credit
A	cash (6840*620)				4240800
	sale revenue					4240800
	(to record sale )
	warranty expenses(620*384)/2				119040
	inventory (620*170)/2					52700
	salary & wages payable (620*214)/2					66340
	(to record warranty expenses)
B	warranty expenses (620*384)/2				119040
	warranty liability					119040
	(to record warranty expense)
C	warranty liability (620*384)/2				119040
	inventory (620*170)/2					52700
	salary & wages payable (620*214)/2					66340
	(to record warranty expenses)
Warranty liability (620*384)/2 =119040

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