Question

Indigo Company sells a machine for $6,970 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 740 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 $324 per machine ($140 parts and $184 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)

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List of Accounts

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Part 2

Warranty accrual on December 31, 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

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Part 3

Warranty costs incurred in 2021. (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

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Part 4

What amount, if any, is disclosed in the balance sheet as a liability for future warranty costs as of December 31, 2020?

Warranty liability

$

Answer 1

Date: Page No. ol 인 or record inventog we are requested This could be inventoy a cash dabour cost we record i in the questim Part 4: future warranty costs $ 119880 Warranty liabilit De 31 2020 g =
All journal entries and calculations are made for all ( 740 ) units. All 740 units are considered in workings.