Chapter 20, Problem 20.14E

Warranty expense

• LO20–4

Woodmier Lawn Products introduced a new line of commercial sprinklers in 2017 that carry a one-year warranty against manufacturer’s defects. Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the industry. Based on that experience, warranty costs were expected to approximate 2% of sales. Sales of the sprinklers in 2017 were $2,500,000. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product:

In late 2018, the company’s claims experience was evaluated and it was determined that claims were far more than expected—3% of sales rather than 2%.

Required:

1. Assuming sales of the sprinklers in 2018 were $3,600,000 and warranty expenditures in 2018 totaled $88,000, prepare any journal entries related to the warranty.

2. Assuming sales of the sprinklers were discontinued after 2017, prepare any journal entries in 2018 related to the warranty.