Duong-Burnett Products introduced a new line of commercial sprinklers in 2023 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 2% of sales. Sales of the sprinklers in 2023 were $3,400,000. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product: General Journal Debit Credit Accrued liability and expense Warranty expense (2% × $3,400,000) 68,000 Warranty liability 68,000 Actual expenditures (summary entry) Warranty liability 31,280 Cash (or salaries payable, parts and supplies, etc.) 31,280 In late 2024, the company's claims experience was evaluated and it was determined that claims were far more than expected—3% of sales rather than 2%. Assuming sales of the sprinklers in 2024 were $4,500,000 and warranty expenditures in 2024 totaled $115,000, prepare any journal entries related to the warranty. Assuming sales of the sprinklers were discontinued after 2023, prepare any journal entries in 2024 related to the warranty.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 10E

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Duong-Burnett Products introduced a new line of commercial sprinklers in 2023 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 2% of sales. Sales of the sprinklers in 2023 were $3,400,000. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product:

General Journal	Debit	Credit
Accrued liability and expense
Warranty expense (2% × $3,400,000)	68,000
Warranty liability		68,000
Actual expenditures (summary entry)
Warranty liability	31,280
Cash (or salaries payable, parts and supplies, etc.)		31,280

In late 2024, the company's claims experience was evaluated and it was determined that claims were far more than expected—3% of sales rather than 2%.

Assuming sales of the sprinklers in 2024 were $4,500,000 and warranty expenditures in 2024 totaled $115,000, prepare any journal entries related to the warranty.
Assuming sales of the sprinklers were discontinued after 2023, prepare any journal entries in 2024 related to the warranty.

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