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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 August15, 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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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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Chapter
Section
BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 11, Problem 7PEA
Textbook Problem
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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 August15, 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

Journalize estimated warranty expense on January 31 for January sales.

Explanation of Solution

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

Prepare journal entry to record estimated warranty expense.

DateAccounts and ExplanationPost RefDebit ($)Credit ($)
January 31Product Warranty Expense  (1) 10,400 
Product Warranty Payable 10,400
    (To record the accrual of warranty payable)   

Table (1)

  • Product warranty expense is an expense and it decreases the equity value...

b.

To determine

Journalize warranty payments for the company.

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Chapter 11 Solutions

Financial Accounting
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