Question

Mason Auto Repair specializes in the repair of foreign car transmissions. To encourage business, Mason offers a 6-month warranty on all repairs. The following data are available for 2019:

Transmissions repaired, 2019	3,600
Expected frequency of warranty claims	0.03	per repair
Actual warranty claims, 2019	$39,000
Estimated warranty liability, 1/1/19	$31,100
Estimated cost of each warranty claim	$330

Assume that warranty claims are paid in cash.

Required:

1. Compute the warranty expense for 2019.
$

2. Prepare the entry to record the payment of the 2019 warranty claims.

	(Record payment of claims)

3. Conceptual Connection: What is the December 31, 2019, balance in the estimated warranty liability account?
$

Why has the balance in the estimated warranty liability account changed from January 1, 2019?

The balance has  because more claims were  than were  through warranty expense.

Answer 1

1. Warranty expenses for 2019
Transmissions repaired in 2009	3600
Expected frequency of warranty claims	0.03 per repair
Expected warranty claims	108
Estimated cost of each warranty claims	$330
Warranty expenses for 2019	$35,640
2. Entry to record the payment of the 2019 warranty claims
Warranty liability	$39,000
Cash/Inventory		$39,000
(Record payment of claims)
3. Balance in Estimated Warranty liability account
Balance on 1/1/19	$31,100
Addittion during the year	$35,640
Less: Actual warranty claims paid in 2019	($39,000)
Balance on 31/12/2019	$27,740