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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

Quantas Industries sold $325,000 of consumer electronics during July under a nine-month warranty.  The cost to repair defects under the warranty is estimated at 4.5% of the sales price. On November 11, a customer was given $220 cash under terms of the warranty.

Provide the journal entry for (a) the estimated warranty expense on July 31 for July sales and (b) the November 11 cash payment.

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 July 31 for July sales.

Explanation

Working note:

Calculate the amount of warranty expense as below:

Warranty expense = Sales × Percent(%)=$325,000×4

B.

To determine

To Journalize: Warranty payments for the company.

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