Hitzu Co. sold a copier costing $4,500 with a two-year parts warranty to a custo

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 $126 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 5% of dollar sales. It records warranty expense with an adjusting entry at the end of each year.

How much warranty expense does the company report in 2015 for this copier?

How much is the estimated warranty liability for this copier as of December 31, 2015?

How much warranty expense does the company report in 2016 for this copier?

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.

-Record the sales revenue of a copier for $9,000 cash with a two-year warranty that covers parts. The company records the related warranty expense as a year-end adjusting entry.

-Record the cost of goods sold of $4,500.

-Record the estimated warranty expense at 5% of the sales.

-Record the cost of $126 towards repair of copier on November 22, 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 $126 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 5% of dollar sales. It records warranty expense with an adjusting entry at the end of each year.

Explanation / Answer

A.) $450 (5% of $9,000)

B.) $540

C.) none, the $126 for materials is debited to the Warranty Liability account and not expense

D.) $414 (540-126)

E.)
(a).
16-Aug-2015
CR Sales $9,000
DR Cash 9,000
DR COGS 4,500

CR Inventory 4,500


31-Dec-2015
DR Warranty expense 540
CR Warranty liability 540

(b)
30-Nov-2016
DR Warranty liability 126
CR Inventory - repair parts 126

In the first narrative the repairs are on 22-Nov-16. Then , "These are the only repairs required in 2017 for this copier."

Warranty liability and expense are recorded at the time of sale. Any warranty claims are charged against the Warranty liability account.

Warranty liability and expense are recorded at the time of sale. Any warranty claims are charged against the Warranty liability account.

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