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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Estimated warranty liability

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.

A.

To determine

Warranty: It is an agreement made by the company to provide guarantee against the defects in the products.

To Journalize: Estimated warranty expense on January 31 for January sales.

Explanation

Working note:

Calculate the amount of warranty expense as below:

Warranty expense = Sales × Percent(%)=$260,000×4

B.

To determine

To Journalize: Warranty payments for the company.

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