Question

Honest Computers has a fiscal year end of Dec 31, 2020. The company sells computers with a 2-year warranty.

Question 11 Honest Computers has a fiscal year end f Dec 31, 2020. The company sells computers with a 2-year warranty. In January 2020, the company sold 35,000 computers at $2,600 each. It is estimated that 3% of all units sold will need repairs under warranty at an estimated cost of $300 per unit. As at December 31, 2020, 900 computers were returned for repairs and the actual warranty costs amounted $250 per computer from materials taken from inventory. Prepare the general journal entries to record the estimated warranty expense and the actual warranty repair payments during 2020. What is the balance of the warranty liability account as at December 31, 2020? (5 marks) Date (Type debit account name in column C, Credit account name in Column D) Account Name Debit Credit

Answer 1

Answers:

Sales = 35,000 units *$2600= 9,10,00,000

3% of units sold as warranty = 1050 units @ 300 per unit = 315000 for two years

900 units till December@ 250 = 225000

Waranty expenses for two years would be intaillay reconised in intial year and and intha year of expenses liabilty is setted off.

Entries:

Provision for warranty a/c Dr 315000

To waranty payable a/c 315000

Closing entry

Waranty expense a/c Dr 225000

To provision for warranty a/ c 225000

Liability at the end : 90,000$