Question

On December 6, 2017, Norwood Co., an office equipment supplier, sold a copier for cash of $19,000 (cost $12,900) with a two-year parts and labour warranty. Based on prior experience, Norwood expects eventually to incur warranty costs equal to 5% of the selling price. The fiscal year coincides with the calendar year. On January 20, 2018, the customer returned the copier for repairs that were completed the same day. The cost of the repairs consisted of $212 for the materials taken from the parts inventory and $374 of labour that was fully paid with cash. These were the only repairs required in 2018 for this copier. Required: 1. How much warranty expense should the company report in 2017 for this copier? Warranty expense 2. How much is the warranty liability for this copier as of December 31, 2017? Warranty liability 3. How much warranty expense should the company report in 2018 for this copier? Warranty expense 4. How much is the warranty liability for this copier as of December 31, 2018? Warranty liability

Answer 1

	1
	Warranty expense	950	=19000*5%
	2
	Warranty liability	950
	3
	Warranty expense	0
	4
	Warranty liability	364	=950-212-374
5
Date	General Journal	Debit	Credit
Dec. 6, 2017	Cash	19,000
	Sales		19,000
Dec. 6, 2017	Cost of goods sold	12,900
	Merchandise inventory		12,900
Dec. 31, 2017	Warranty expense	950
	Estimated warranty liability		950
Jan. 20, 2018	Estimated warranty liability	586
	Repair parts inventory		212
	Cash		374