Hitzu Co. sold a copier costing $4,500 with a two-year parts warranty to a custo
ID: 2447549 • Letter: H
Question
Hitzu Co. sold a copier costing $4,500 with a two-year parts warranty to a customer on August 16, 2015, for $9,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2016, the copier requires on-site repairs that are completed the same day. The repairs cost $131 for materials taken from the Repair Parts Inventory. These are the only repairs required in 2016 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 4% of dollar sales. It records warranty expense with an adjusting entry at the end of each year.
1. How much warranty expense does the company report in 2015 for this copier?
2. How much is the estimated warranty liability for this copier as of December 31, 2015?
3. How much warranty expense does the company report in 2016 for this copier?
4. How much is the estimated warranty liability for this copier as of December 31, 2016?
Prepare journal entries to record (a) the copier’s sale; (b) the adjustment on December 31, 2015, to recognize the warranty expense; and (c) the repairs that occur in November 2016.
Hitzu Co. sold a copier costing $4,500 with a two-year parts warranty to a customer on August 16, 2015, for $9,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2016, the copier requires on-site repairs that are completed the same day. The repairs cost $131 for materials taken from the Repair Parts Inventory. These are the only repairs required in 2016 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 4% of dollar sales. It records warranty expense with an adjusting entry at the end of each year.
1. How much warranty expense does the company report in 2015 for this copier?
2. How much is the estimated warranty liability for this copier as of December 31, 2015?
3. How much warranty expense does the company report in 2016 for this copier?
4. How much is the estimated warranty liability for this copier as of December 31, 2016?
Prepare journal entries to record (a) the copier’s sale; (b) the adjustment on December 31, 2015, to recognize the warranty expense; and (c) the repairs that occur in November 2016.
5a. Record the sale of a copier for $9,000 cash.5b. Record the cost of goods sold of $4,500.
5c. Record the sale of a copier for $9,000 cash. Record the cost of goods sold of $4,500. Record the estimated warranty expense at 4% of the sales.
5d. Record the cost of $131 towards repair of copier on November 22, 2016.
Explanation / Answer
1) The warranty expense that the company report in 2015 for this copier is 9000x4% =$360 because warranty cost is equal to 4% of Dollar sales .
2) the estimated warranty liability for this copier as of December 31, 2015 is $360(9000x4%)
3) There is No warranty expense in year 2016 for copier as the onsite repair cost for materials will be debited to the warranty liability account and not warranty liability expense.
4) warranty liability for this copier as of December 31, 2016 is 360 - 131 = $229.
5) a
Sales A/c dr 9000
To cash 9000
b)
COst of Goods Sold Dr 4500
To Inventory A/c 4500
c)
Warranty Expense A/c Dr 360
To Waranty liability A/c 360
d)
Warranty liabiliy A/c Dr 131
To Inventory- Repair PArts A/c 131
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