Question

Oriole Equipment Company sells computers for $1,220 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2020, the company sold 950 computers. Based on past experience, the company has estimated the total 2-year warranty costs as $40 for parts and $60 for labor. (Assume sales all occur at December 31, 2020.) In 2021, Oriole incurred actual warranty costs relative to 2020 computer sales of $10,000 for parts and $15,000 for labor. Part 1 Under the expense warranty approach, give the entries to reflect the above transactions (accrual method) for 2020 and 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 2020 (To record sale of computers) 2020 (To record liability against warranty costs) 2021 < < e Textbook and Media List of Accounts Save for Later Attempts: 0 of 2 used Submit Answer Part 2 The transactions of part (a) create what balance under current liabilities in the 2020 balance sheet? Current Liabilities $ $

Answer 1

Here on Sales the Cash account will be debited and Sales account credited for the same amount

($1220*950 = $1159000)

Cash (Dr) $1159000

Sales (Cr) $1159000

To record the liability on warranty, warranty expense will be debited and a corresponding liability will be created on same amount as Estimated Warranty Liability or Warranty Liability account

($40+$60)*950 = $95000

Warranty Expense (Dr) $95000

  Estimated Warranty Liability (Cr) $95000

Now on actual cost occurance the created Estimated Warranty Liability account will be debited for the expense and for spare parts inventory will be credited and for the labour part cash will be credited

Estimated Warranty Liability (Dr) $25000

Inventory (Cr) $10000

Cash    (Cr) $15000

Now for the part 2 as said earlier on 2020 balance sheet under current liability the Estimated Warranty Liability account will show a balance of $95000

Hence solved

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