Question

Question 2

During its first year of operations, Keene Limited had sales of $76,500. The company offers a 2-year limited warranty on all sales and expects that warranty costs for the first year will average 0.5% of

sales with an additional 1.5% in the second year. During the current year the company spent $1,200 on warranty repairs.

1.    Prepare all journal entries related to the warranty for the current year.
2.    How will the warranty liability be reported on the company’s year-end balance sheet?

Answer 1

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a)Journal Entries: Particulars Debit Credit Warranty Expense ($76,500 * 2%) $1,530 Warranty Liability $1,530 (Being to book the year's warranty expense) Warranty Liability $1,200 Cash $1,200 (Being to meet the current year's warranty repairs) b) The warranty liability be reported on the company's year-end balance sheet under the Liability side as a heading"Warranty Liability Account".