EarlKeen Co. sold $260,000 of equipment during January under a one-year warranty. The cost to repair defects under the warranty is estimated at 4% of the sales price. On August 15, a customer required a $100 part replacement plus $50 of labor under the warranty.Provide the journal entry for (a) the estimated warranty expense on January 31 for January sales and (b) the August 15 warranty work.

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Asked Dec 17, 2019
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EarlKeen Co. sold $260,000 of equipment during January under a one-year warranty. The cost to repair defects under the warranty is estimated at 4% of the sales price. On August 15, a customer required a $100 part replacement plus $50 of labor under the warranty.
Provide the journal entry for (a) the estimated warranty expense on January 31 for January sales and (b) the August 15 warranty work.

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Expert Answer

Step 1

Prepare the journal entry to record estimated warranty expense.

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Debit Credit |($) Post Accounts and Explanation Date Ref ($) January Product Warranty Expense (1) 10,400 31 Product Warranty Payable 10,400 (To record the accrual of warranty payable)

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Step 2
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Working note: Calculate the amount of warranty expense as below: Warranty expense = Sales x Percent(%) = $260,000 x 4.5% = $10,400 (1)

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