Question 1 Computers Galore Ltd. sells computers, computer accessories, and soft

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Question 1 Computers Galore Ltd. sells computers, computer accessories, and software. On its computer sales, the company provides a one-month warranty that is included in the cost of the computer. Claims under the warranties vary from replacing defective parts to providing customers with new computers if repairs cannot be made. During 2016, the estimated cost related to the one-month warranties was $39,500, of which $35,300 had been incurred before year end. For an additional charge of $100, Computers Galore also offers extended warranty coverage for two years on its computers. This amount is expected to cover the costs associated with the extended warranties. During 2016, Computers Galore sold 760 two-year warranties. The costs incurred during the year for repairs and replacements under these warranties amounted to $28,300. Based on past experience, the company estimates that its total warranty costs over the two-year coverage period will be $61,200. Prepare journal entries to record the warranty transactions for 2016. (Enter debit entries first followed by credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 14,674.) No. Account and explanation Debit Credit 1. (To record estimated cost related to 1 month warranties.) 2. (To record cost incurred related to 1 month warranties.) 3.

Explanation / Answer

Account title Debit Credit Warranty expenses 39500 Warranty cost liability 39500 (To record estimated cost related to 1 month warranties) Warranty cost liability 35300 Cash 35300 (To record cost related to 1 month warranty) Warranty expenses 61200 2-year warranty liability 61200 (To record estimated cost related to 2-year warranties) 2-year warranty liability 28300 Cash 28300 (To record cost incurred related to 2-year warranties)

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