Question

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Problem 10-3A Estlmated product warranty liabilitles L04 CHECK FIGURES: 2. $1,750; 3. $40,600; 4. $40,145 On November 10, 2017, Singh Electronics began to buy and resell scanners for $65 each. Singh uses the perpetual system to account for inventories. The scanners are covered under a warranty that requires the company to replace any non-working scanner within 90 days. When a scanner is returned simply throws it away and mails a new one from inventory to the customer. The company's cost for a new scanner is only $35. ing transactions occurred in 2017 and 2018 (ignore GST and PST): , the company Singh estimates warranty costs based on 18% of the number of units sold. The follow 2017 15 30 8 15 29 31 2018 Nov. Sold 2,000 scanners for $110,000 cash. Recognized warranty expense for November with an adjusting entry. Replaced 150 scanners that were returned under the warranty. Sold 5,500 scanners. Replaced 40 scanners that were returned under the warranty. Recognized warranty expense for December with an adjusting entry Dec. Jan. 14 Sold 275 scanners. 20 31 Replaced 63 scanners that were returned under the warranty. Recognized warranty expense for January with an adjusting entry. Required 1. How much warranty expense should be reported for November and December 2017? 2. How much warranty expense should be reported for January 2018? 3. What is the balance of the estimated warranty liability as of December 31, 2017? 4. What is the balance of the estimated warranty liability as of January 31, 2018? 5. Prepare journal entries to record the transactions and adjustments (ignore sales taxes).

Answer 1

1. Warranty Expense for November 2017 is 19800 (110000*18%) and for December 2017 is 54450 (5500*55*18%)

2. Warranty expense to be reported for January 2018 2723 (275*55*18%)

3. Estimated warranty liability as of December 31, 2017 is   67600 (74250-6650)

    Warranty expense for November and December is (19800 + 54450)=74250

    Replaced scanner in December 190 (150+40) with cost of 35 = 6650 (190*35)

4. Estimated warranty liability as of January 31, 2018 is 68118 (67600+2723-2205)

    Warranty liability as of December is 67600

     Add: Warranty Expense of January 2723

     Less: Warranty Liability of January 2205 (63*35)

5. Journal Entries to record the transactions are:

S.NO	Date	Particulars	Debit	Credit
1	15.11.2017	Cash	110000
		To Sales		110000
		(To record Sales in cash)
2	30.11.2017	Warranty Expenses	19800
		To Warranty Liability		19800
		(To record warranty expenses)
3	08.12.2017	Warranty Liability	5250
		To Inventory		5250
		(To record replacement under warranty)
4	15.12.2017	Cash	302500
		To Sales		302500
		(To record Sales in cash)
5	29.12.2017	Warranty Liability	1400
		To Inventory		1400
		(To record replacement under warranty)
6	31.12.2017	Warranty Expenses	54450
		To Warranty Liability		54450
		(To record warranty expenses)
7	14.01.2018	Cash	15125
		To Sales		15125
		(To record Sales in cash)
8	20.01.2018	Warranty Liability	2205
		To Inventory		2205
		(To record replacement under warranty)
9	31.01.2018	Warranty Expenses	2723
		To Warranty Liability		2723
		(To record warranty expenses)