Warranty CostsMilford Company sells a motor that carries a three-month unconditional warranty against product failure. Based on a reliable statistical analysis, Milford knows that between the sale and the end of the product warranty period, four percent of the units sold will require repair at an average cost of $60 per unit. The following data reflect Milford’s recent experience: OctoberNovemberDecemberDec. 31 TotalUnits sold23,00022,00025,00070,000Known product failures from sales in: October120180160460November 130220350December 210210Calculate, and prepare a journal entry to record, the estimated liability for product warranties at December 31. Assume that warranty costs of known failures have already been reflected in the records. General JournalDateDescriptionDebitCreditDec.31AnswerProduct Warranty ExpenseEstimated Liability for Product WarrantyAnswerAnswer AnswerProduct Warranty ExpenseEstimated Liability for Product WarrantyAnswerAnswer To provide for estimated future warranty expense.

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Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter9: Current Liabilities, Contingencies, And The Time Value Of Money

Section: Chapter Questions

Problem 9.5AP

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Warranty Costs
Milford Company sells a motor that carries a three-month unconditional warranty against product failure. Based on a reliable statistical analysis, Milford knows that between the sale and the end of the product warranty period, four percent of the units sold will require repair at an average cost of $60 per unit. The following data reflect Milford’s recent experience:

	October	November	December	Dec. 31 Total
Units sold	23,000	22,000	25,000	70,000
Known product failures from sales in:
October	120	180	160	460
November		130	220	350
December			210	210

Calculate, and prepare a journal entry to record, the estimated liability for product warranties at December 31. Assume that warranty costs of known failures have already been reflected in the records.

General Journal
Date	Description	Debit	Credit
Dec.31	AnswerProduct Warranty ExpenseEstimated Liability for Product Warranty	Answer	Answer
	AnswerProduct Warranty ExpenseEstimated Liability for Product Warranty	Answer	Answer
	To provide for estimated future warranty expense.

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