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.

Sale of machinery and warranty expense incurred in 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
(To record sale)
(To record warranty expense)

Assuming that actual warranty costs are incurred exactly as estimated, what journal entries would be made relative to the following facts?

please show work

Answer 1

Solution:

No.	Account title and Explanation	Debit($)	Credit($)
1.	Cash	4,166,400
	Sales Revenue (620 units × $6,720)		4,166,400
	(To record sale)
2.)	Warranty expenses	112,530
	Inventory ($158/ unit × 620 units × 50% incurred)		48,980
	Salaries and wages payable ($205 × 620 units × 50%)		63,550
	(To record warranty costs incurred in 2017)
3.)	Warranty expenses	112,530
	Warranty liability		112,530
	( To record warranty expenses charged against 2017 revenues)
4.)	Warranty liability	112,530
	Inventory		48,980
	Salaries and wages payable		63,550

(To record warranty costs incurred in 2018)