Question

Merritt Equipment Company sells computers for $1,220 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 950 computers. Based on past experience, the company has estimated the total 2-year warranty costs as $40 for parts and $60 for labor. (Assume sales all occur at December 31, 2017.) In 2018, Merritt incurred actual warranty costs relative to 2017 computer sales of $10,000 for parts and $15,000 for labor.

Part 1 please show work

Under the expense warranty approach, give the entries to reflect the above transactions (accrual method) for 2017 and 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
2017
	(To record sale of computers)
2017
	(To record liability against warranty costs)
2018

Answer 1

2017	Accounts Receivable	1159000		=950*1220
	Sales Revenue		1159000
	(To record sale of computers)
2017	Warranty Expense	95000		=950*(40+60)
	Warranty Liability		95000
	(To record liability against warranty costs)
2018	Warranty Liability	25000
	Inventory		10000
	Cash / Accrued Payroll		15000