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Cornerstones of Financial Accounti...
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Cornerstones of Financial Accounti...
Warranties
Ed’s Athletics sells bicycles and other sports and athletic equipment. Sales and expected warranty claims for the year are as follows:
Required:
1. Prepare the entry to record warranty expense for Ed’s for the year.
2. CONCEPTUAL CONNECTION Why does Ed’s have to record a liability for future warranty claims?
Concept introduction:
Warranty Expense:
A company may issue warranty with the sale of its product which bounds the company to replace or repair in case of quality failure according to the terms of the warranty. The provision for the estimated warranty liability is made at the time of sale of the products and warranty expense is recorded. This provision is utilized at the time of performing the warranty contract.
Requirement 1:
To prepare:
The Journal entry to record the Warranty expense for the year.
The Journal entry to record the Warranty expense for the year is explained as follows:
| Ed’s Athletics | ||||
| Journal Entries | ||||
| Date | Account Titles | Debit | Credit | |
| Dec... | ||||
Concept introduction:
Warranty Expense:
A company may issue warranty with the sale of its product which bounds the company to replace or repair in case of quality failure according to the terms of the warranty. The provision for the estimated warranty liability is made at the time of sale of the products and warranty expense is recorded. This provision is utilized at the time of performing the warranty contract.
Requirement 2:
To indicate:
The reason for recognizing the future warranty liability.
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