Question

Waterway Company sells a machine for $6,660 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 620 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 $277 per machine ($118 parts and $159 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.	Accounts Titles and Explanation	Debit	Credit
1)	Cash/ Accounts Receivable	$4129200
	Sales Revenue ($6660 * 620 )		$4129200
	(To record sale)
	Warranty Expenses ($277 * 620 )/2	$85870
	Warranty liability		$85870
	( to record warranty expenses )
2)	Warranty Expenses	$85870
	Warranty Expense Accrual		$85870
	(to record warranty expenses relating to 2020 incurred in 2021)
3)	Estimated Warranty Liabilities	$85870
	Inventory		$85870
	(to record the warranty expense of 2020)

4) The amount disclosed as liability for future warranty costs in Balance Sheet as of 31st December, 2020 is $85870