Chloe Co. sold $270,000 of equipment during January under a one-year warranty. T

Question

Chloe Co. sold $270,000 of equipment during January under a one-year warranty. The cost to repair defects under the warranty is estimated at 6% of the sales price. On June 20, a customer required a $115 part replacement, plus $46 of labor under the warranty.

Provide the journal entry for (a) the estimated warranty expense on January 31 for January sales on page 10 of the journal and (b) the June 20 warranty work on page 14 of the journal. Refer to the Chart of Accounts for exact wording of account titles.

Explanation / Answer

Journal Entries

1. At the time of sale of equipment

Statement of Pofit & Loss A/c Dr........... $16200

To Provision for post sale expenses............ $16200

(Being provision for estimated warranty expenses @ 6% of Sale Proceeds created)

2. Provision for post sale expenses Dr..... $ 161

To Bank..........................................................$ 161

(Being expenses paid)

(a) Estimated warranty expense as on January 31 is $ 16200

(b) Expenses incurred from the provisions is $ 161 (115+46)

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