Oriole Factory provides a 2-year warranty with one of its products which was fir

Question

Oriole Factory provides a 2-year warranty with one of its products which was first sold in 2017. Oriole sold $988,300 of products subject to the warranty. Oriole expects $113,090 of warranty costs over the next 2 years. In that year, Oriole spent $72,570 servicing warranty claims. Prepare Oriole’s journal entry to record the sales (ignore cost of goods sold) and the December 31 adjusting entry, assuming the expenditures are inventory costs. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

2017

During 2017

12/31/17

Explanation / Answer

During 2017:

Cash/Accounts Receivable $988,300

Sales Revenue $988,300

(Being sales made on cash/account.)

Warranty Expense 72,570

Inventory 72,570

(Warranty Expense for the year booked.)

Dec. 31 Adjusting entry:

Warranty Expense 40,520

Warranty Liabilities 40,520

(Expected warranty expense recognized for the next year.)

(113,090 - 72,570)

Future claims (2018):

Warranty Liabilities XX

Inventory XX

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