Question

Recording and Reporting Warranties During 2020, Ward Company introduced a new product carrying a three-year warranty against defects, which has a separate purchase price. The company collected $20,000, and $35,000 for this extended warranty feature in the years 2020 and 2021, respectively. The company uses straight-line recognition of warranty revenue. The estimated warranty costs are 2% of sales within the first 12 months following the sale and 44 in the second 12 months following the sale. For simplification, assume that sales occurred at the first of the year. Sales and actual warranty expenditures for the years ended December 31, 2020 and 2021 are: Actual Warranty Sales Expenditures 2020 $600.000 50.000 2021 1.000.000 30.000 51.000.000 539.000 a. Record the journal entries required for (1) the sale of the products and warranties on credit, (2) incurred warranty costs, and (3) recognition of warranty revenue for 2020 and 2021, Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round your answers to the nearest whole dollar.

Answer 1

Amounts are in $

The answer is attached as picture

0 Accounts receivable 620,000 Deferred was Waxtanzy revenue sales revenue 20,000 600,000 2 9,000 9,000 Warranty expense Cash &pagables Deferred westent revenue Warranty revenue (20,000 & 13) 6,667 6, 667 Accounts receivable 1035,000 Deferred wassent, revenue | 35100 sales revenue 1,000,000 00 ON 02 30,000 Waddenty expense 30,000 8 Wednesday Cash &s payables (narration is wrong in given question ) (do record Warranty incorred casts ② Deferred warranty revenue 18,333 Warrionly revenue ( 20,000x13 35,000x13) 18,333 plote. For the last entry the amount can also be 18,334 Note. we do not have Deferred Warranty revenue account, we can use "Deferred revenue) CScanned with CamScanner

Note :

Here only these three entries are asked for the year, but in practice the accounting is different

1. 1st entry is to account the sales and it will be same as above

2. Next entry will be to record expected warranty liabilty and the entry for that will be

Warranty expense xxx

Warranty liability xxx

(This is recorded based on estimated % of sales that will be using warranty)

3. Next entry is to record actual warranty cost incurred

Warranty liability xxx

Cash and payable xxx

4. Last entry is to record warranty revenue and it will be same as above