Question

Lindy Appliance begins operations in 2021 and offers a one-year warranty on all products sold. Total appliance sales in 2021 are $1,600,000, and Lindy estimates future warranty costs in 2022 to be 2% of current sales. Actual warranty costs in 2022 are $25,000. Also in 2022, Lindy has additional sales of $2,400,000 and revises its estimate of warranty costs associated with sales in 2022 to be 1.5%.

1.-3. Record the necessary entries in the Journal Entry Worksheet

1. Record the contingent liability for warranties for the year ending December 31, 2021.

2. Record the actual warranty expenditures, assuming all costs were paid in cash.

3. Record the contingent liability for warranties for the year ending December 31, 2022.

Answer 1

Date	Account Titles and Explanation	Debit	Credit
December 31, 2021	Warranty expense ($ 1,600,000 x 2% )	$ 32,000
	Warranty liability		$ 32,000
	(To record the contingent liability for warranties)
December 31, 2022	Warranty liability	$ 25,000
	Cash		$ 25,000
	(To record the actual warranty expenditure)
December 31, 2022	Warranty Expense ($ 2,400,000 x 1.5% ) (-) [ $ 32,000 (-) $ 25,000 ]	$ 29,000
	Warranty liability		$ 29,000
	(To record contingent liability for warranties)