Chapter 11, Problem 10E

To determine

Concept Introduction:

Warranty Expense and Estimated Warranty Payable:

Warranty Expense refers to the cost which a business expects to incur or has already incurred for the repair or replacement of the goods sold.

Warranty Expense is calculated by using the following formula $–$

$WarrantyExpense=SalesXEstimatedwarrantypayable\left(rateofsales\right)$

Requirement 1

To determine:

Warranty Expense for the year 2017

Answer to Problem 10E

Solution:

Warranty Expense for the year 2017 = $ 240

Explanation of Solution

The above answer can be explained as $–$

Given,

• Sales for the year 2017 = $ 6,000

• Estimated warranty payable (rate of sales) = 4 % of dollar sales

$\begin{array}{l}WarrantyExpense=SalesXEstimatedwarrantypayable\left(rateofsales\right)\\ \begin{array}{l}WarrantyExpense=\$6,000X4\%\hfill \\ WarrantyExpense=\$240\hfill \end{array}\end{array}$

Conclusion

Thus, the warranty expense for the year 2017 has been determined.

To determine

Requirement 2

To determine:

Estimated warranty liability for this copier as of December 31, 2017

Answer to Problem 10E

Solution:

Estimated warranty liability for this copier as of December 31, 2017 = $ 240

Explanation of Solution

The estimated warranty liability for this copier as of December 31, 2017 is $ 240 as calculated above. The warranty expense for the year is transferred to Estimated warranty liability i.e. $ 240.

Conclusion

Thus, the estimated warranty liability for this copier as of December 31, 2017 has been determined.

To determine

Requirement 3

To determine:

Warranty expense for this copier for the year 2018

Answer to Problem 10E

Solution:

Warranty expense for this copier for the year 2018 = $ 0

Explanation of Solution

The above answer can be explained as under $–$

The sale for this copier was made in the year 2017. In 2017, the warranty expense on this copier has been determined and recorded. Thus, the warranty expense for this copier is $ 0 for the year 2018.

Conclusion

Thus, the warranty expense for the year 2018 was $ 0.

To determine

Requirement 4

To determine:

Estimated warranty liability for this copier as of December 31, 2018

Answer to Problem 10E

Solution:

Estimated warranty liability for this copier as of December 31, 2018 = $ 31

Explanation of Solution

The above answer can be explained as under $–$

Given,

• Warranty claims (repairs costs) for the copier sold in 2017 in the year 2018 = $ 209

• Estimated warranty liability, beginning = $ 240

$\begin{array}{l}Estimatedwarrantyliability,ending=\left(\begin{array}{l}Estimatedwarrantyliability,beginning\\ -Warrantyclaims\left(repairscosts\right)\end{array}\right)\hfill \\ Estimatedwarrantyliability,ending=\$240-\$209\hfill \\ Estimatedwarrantyliability,ending=\$31\hfill \end{array}$

Conclusion

Thus, the estimated warranty liability for this copier as of December 31, 2018 has been determined.

To determine

Requirement 5

To prepare:

Journal entries for $–$

a. Copier’s sales

b. The adjusting entry to record warranty expense for the year

c. Repairs that occur in November 2018

Answer to Problem 10E

Solution:

Date	Accounts Titles and Descriptions	Debit	Credit
2017
Aug-16	Cash	6,000
	Sales Revenue		6,000
	(To record sale of copier)
	Cost of goods sold	4,800
	Merchandise Inventory		4,800
	(To record cost of goods sold for the sales)
Dec-31	Warranty Expense	240
	Estimated Warranty expense		240
	(To record the warranty expense for the year)
2018
Nov-22	Estimated Warranty expense	209
	Repair parts Inventory		209
	(To record cost of inventory repaired)

Explanation of Solution

The above journal entries can be explained as under $–$

For the year 2017 $–$

Aug-16: The sales are recorded for cash for $ 6,000. Thus, cash is debited and sales revenue is credited with $ 6,000.

The cost of goods sold for the sales is recorded in the next entry for $ 4,800. Thus, cost of sales is debited and merchandise inventory is credited with $ 4,800.

Dec-31: The above entry can be explained as $–$

Given,

• Sales for the year 2017 = $ 6,000

• Estimated warranty payable (rate of sales) = 4 % of dollar sales

$\begin{array}{l}WarrantyExpense=SalesXEstimatedwarrantypayable\left(rateofsales\right)\\ \begin{array}{l}WarrantyExpense=\$6,000X4\%\hfill \\ WarrantyExpense=\$240\hfill \end{array}\end{array}$

The warranty expense is $ 240. It has been debited and estimated warranty payable has been credited.

For the year 2018 $–$

Nov-22: The repairs of copier is recorded for the sale made in 2018. Thus, estimated warranty liability is debited and Repair parts Inventory is credited with $ 209.

Conclusion

Thus, all the necessary journal entries have been made.