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P13.7B (LO 3) (Warranties) Treanor Company sells a machine for $12,200 under a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the company sells 240 machines in 2020 (warranty expense is incurred half in 2020 and half in 2021). As a result of product testing, the company estimates that the warranty cost is $635 per machine ($260 parts and $375 labor). Instructions Assuming that actual warranty costs are incurred exactly as estimated, what journal entries would be made relative to the fol- lowing facts? (a) Sale of machinery and warrenty expense incurred in 2020. (b) Warranty accured on December 31, 2020 (c) Warranty costs incurred in 2021. (d) What amount, if any, is disclosed in the balance sheet as a liability for future warranty costs as of December 31, 2020?

Answer 1

Answer
S.No.	Accounts titles and Explanation	Debit ($)	Credit ($)
A.	Cash	$ 2,928,000
	Sales revenue ($12200*240)		$ 2,928,000
	Warranty expense [(240*$635) / 2]	$      76,200
	Inventory [(240*$260) / 2]		$      31,200
	Salary and wages payable [(240*$375) / 2]		$      45,000
B.	Warranty expense	$      76,200
	Warranty liability [(240*$635) / 2]		$      76,200
C.	Warranty expense [(240*$635) / 2]	$      76,200
	Inventory [(240*$260) / 2]		$      31,200
	Salary and wages payable [(240*$375) / 2]		$      45,000
D. Warranty liability - $76,200

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