Question

Betancourt Company sells automatic can openers under a 75-day warranty for defective merchandise. Based on past experience, Betancourt estimates that 4% of the units sold will become defective during the warranty period. Management estimates that the average cost of replacing or repairing a defective unit is $25. The units sold and units defective that occurred during the last 2 months of 2017 are as follows Month Units Sold Units Defective Prior to December 31 November 39,500 790 December 41,500 519 Prepare the journal entries to record the estimated liability for warranties and the costs incurred in honoring 1,309 warranty claims. (Assume actual costs of $32,725.) (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Debit Account Titles and Explanation Credit (To accrue estimated warranty costs.) (To record honoring of warranty contracts.) Determine the estimated warranty liability at December 31 for the units sold in November and December Estimated warranty liability Give the entry to record the honoring of 500 warranty contracts in January at an average cost of $25. (Credit account titles are automatically indented when amount is entered Do not indent manually) Debit Account Titles and Explanation Credit

Answer 1

Ques 1
Account titles	debit	credit
Warranty expense	81000
Warranty liability		81000
(accrue)
((39500*0.04)+(41500*0.04))*25
Warranty liability	32725
repair parts		32725
1309*25
Ques 2
Estimated warranty liability	48275
81000-32725
Ques 3
Account titles	debit	credit
Warranty liability	12500
repair parts(500*25)		12500