Hitzu Co. sold a copier costing $3,500 with a two-year parts warranty to a custo

Question

Hitzu Co. sold a copier costing $3,500 with a two-year parts warranty to a customer on August 16, 2017, for $7,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2018, the copier requires on-site repairs that are completed the same day. The repairs cost $147 for materials taken from the repair parts inventory. These are the only repairs required in 2018 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 3% 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 2017 for this copier? arranty expense 2. How much is the estimated warranty liability for this copier as of December 31, 2017? Estimated warranty liability 3. How much warranty expense does the company report in 2018 for this copier? arranty expense 4. How much is the estimated warranty liability for this copier as of December 31, 2018? Estimated warranty liability

Explanation / Answer

1 Warranty expense =7000*3% = 210 2 Estimated warranty liability = 210 3 Warranty expense = 0 4 Estimated warranty liability=210-147=63 5 Date General Journal Debit Credit Aug. 16, 2017 Cash 7,000 Sales 7,000 Aug. 16, 2017 Cost of goods sold 3,500 Merchandise inventory 3,500 Dec 31, 2017 Warranty expense 210 Estimated warranty liability 210 Nov. 22, 2018 Estimated warranty liability 147 Repair parts inventory 147

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