Question

Madison 101 honored scanners (from #7 above).

(#7. Madison Co. sells 13,000 scanners at a price of $250.00 each. The selling price includes a warranty (1 year) on parts. Madison expects that 4.5% of the scanners will be defective and that warranty repair costs will be $56 per unit. Complete the following: a. Journalize the sale (assume a 7.75% sales tax rate). b. Estimate, and then journalize the warranty liability.)

Answer 1

Solution

Transaction	Account Titles and Explanation	Debit	Credit
a	Cash	$ 3,501,875.00
	Sales revenue		$ 3,250,000.00
	Sales tax payable		$      251,875.00*
	(To record sales)
b	Warranty expense	$        32,760.00
	Warranty liability		$        32,760.00
	(To record warranty liability)

*3250000 x 7.75%

Scanners sold	13000
% of scanners expected to be defective	4.50%
Total scanners expected to be defective (13000 x 4.5%)	585.0
Cost per scanned needed for repair	$ 56.00
Total cost of repairs of scanner (warranty liability).........(56 x 585)	$        32,760.00