Question

Woodmier Lawn Products introduced a new line of commercial sprinklers in 2017 that carry a one-year warranty against manufacturer's defects. Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the industry. Based on that experience, warranty costs were expected to approximate 1% of sales. Sales of the sprinklers in 2017 were $3.6 million. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product: Credit General Journal Accrued liability and expense Warranty expense (18 * $3,600,000) Estimated warranty liability Debit 36,000 36,000 Actual expenditures ( mary entry) Estimated warranty liability Cash, wages payable, parts and supplies, etc. 19,000 19,000 In late 2018, the company's claims experience was evaluated and it was determined that claims were far more than expected-2% of sales rather than 1%. Required: 1. Assuming sales of the sprinklers in 2018 were $4.7 million and warranty expenditures in 2018 totaled $99,000, prepare any journal entries related to the warranty. 2. Assuming sales of the sprinklers were discontinued after 2017, prepare any journal entry(s) in 2018 related to the warranty Complete this question by entering your answers in the tabs below. Required 1 Required 2 Assuming sales of the sprinklers in 2018 were $4.7 million and warranty expenditures in 2018 totaled $99,000, prepare any Journal entries related to the warranty. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

Answer 1

Solution:

1)

Event no.	Date	Account title and Explanation	Debit	Credit
1.	31 Dec. 2018	warranty expenses ($4,700,000 ×2%)	$94,000
		Estimated warranty liability		$94,000
		( To record the warranty expenses liability )
2.	31 Dec. 2018	Estimated warranty liability	$99,000
		Cash, wages payable, parts and supplies, etc.		$99,000
		(To record the payment for warranty expenses )

2.)

Event no.	Date	Account title and Explanation	Debit	Credit
1.	31 Dec. 2018	Estimated warranty liability	$17,000
		Loss on product warranty	$36,000
		Cash, wages payable, parts and supplies etc.		$53,000
		(To recordthe actual expenditure)

* Estimated warranty liability ($36000 - $19000) =$17,000

Loss on product warranty [(2% - 1%) × $3,600,000) =$36,000

Cash, wages payable, parts and supplies etc. (2% ×$3,600,000) - $19,000) =$53,000