Question

Coronado Company sells a machine for $7,080 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 580 machines in 2020 (warranty expense is incurred half in 2020 and half in 2021). As a result of product testing, the company estimates that the warranty cost is $430 per machine ($190 parts and $240 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?

Part 1 Sale of machinery and warranty expense incurred in 2020. (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)

Answer 1

S.No.	Account title	Debit	Credit
Part 1	Cash ( $ 7080 * 580 machines)	4,106,400
	Sales		4,106,400
	(Being Sales Recorded)
	Warranty Liability ( 580 machines * $ 430 <Warranty Cost>)*50%)	124,700
	Inventory ( 580 machines * $ 190 <Part Cost>)*50%)		55,100
	Salaries and Wage Payable ( 580 machines * $ 240 <Labor Cost>)*50%)		69,600
	(Being Warranty Expenses Recorded in 2020 )
Part 2	Warranty Expenses ( 580 machines * $ 430 <Warranty Cost>)	249,400
	Warranty Liability ( 580 machines * $ 430 <Warranty Cost>)		249,400
	(Being Warranty Accrual Recorded in 2020)
Part 3	Warranty Liability ( 580 machines * $ 430 <Warranty Cost>)*50%)	124,700
	Inventory ( 580 machines * $ 190 <Part Cost>)*50%)		55,100
	Salaries and Wage Payable ( 580 machines * $ 240 <Labor Cost>)*50%)		69,600
	(Being Warranty Expenses incurred Recorded in 2021 )
Part 4	Warranty Liability to be disclosed as liability is $ 124,700 ( 580 machines * $ 430 <Warranty Cost>)*50%) which will be incurred in 2021