Question

Brief Exercise 13-13 Bonita Factory provides a 2-year warranty with one of its products which was first sold in 2017. Bonita sold $909,800 of products subject to the warranty. Bonita expects $124,480 of warranty costs over the next 2 years. In that year, Bonita spent $73,090 servicing warranty claims. Prepare Bonita’s journal entry to record the sales (ignore cost of goods sold) and the December 31 adjusting entry, assuming the expenditures are inventory costs. (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.) Date Account Titles and Explanation Debit Credit 2017 (To record sales) During 2017 (To record warranty claims) 12/31/17

Answer 1

Credit $909,800 [Actual cost incurred] Date Account Titles and Explanation Debit 2017 Cash $909,800 Sales Revenue (To record sales) During Warranty Expense $73,090 2017 Inventory (To record warranty claims) Dec. 31, Warranty Expense $51,390 2017 Warranty Liability (To record warranty liability provision) $73,090 ($124480 - $73090] $51,390 EXPLANATION: When actual warranty cost is incurred, inventory would have been used to satisfy the warranty claim and so inventory account is credited for recording actual cost incurred during 2017. At the end of 2017, actual warranty cost was incurred $73,090 out of total estimated liability of $124,480 and so for the balance, liability is crediated on Dec. 31, 2017.