5 Hitzu Co. sold a copier costing $5,500 with a two year parts warranty to a cus
ID: 2585406 • Letter: 5
Question
5 Hitzu Co. sold a copier costing $5,500 with a two year parts warranty to a customer on August 16, 2017, fo nventory system. On November 22. 2018, the copier requires on-site repairs that are completed the same day The repairs cost $112 for materials taken from the repair parts inventory These are the only rep on experience, Hizu expects to incur warranty costs equal to 4% of dollar sales. It records warranty expense with an adjusting entry at the end of each year airs required in 2018 for this copier Based 0 1. How much warranty expense does the company report in 2017 for this copier? 2. How much is the estimated warranty liability for this copier as of December 31, 2017? does the company report in 2018 for this copier?Explanation / Answer
1) How much warranty expense does the company report in 2017 for this copier?
Answer : Warranty expense = $440
Warranty expense = 4% of dollar sales = 4% × $11,000 = $440.
2) How much is the estimated warranty liability for this copier as of December 31, 2017?
Answer : estimated warranty liability = $440
In December 31, 2017, balance of the liability equals the expense because no repairs are provided in 2017. Therefore, the ending balance of the Estimated Warranty Liability account is $440 .
3) How much warranty expense does the company report in 2018 for this copier?
Answer : warranty expense = $ 0
Because The company should report no additional warranty expense in 2018 for this copier
4) How much is the estimated warranty liability for this copier as of December 31, 2018?
Answer : estimated warranty liability =$ 328
In December 31, 2018, balance of the Estimated Warranty Liability account equals the 2018 beginning balance minus the costs incurred in 2018 to repair the copier:
opening 2018 balance = $440
Less: parts cost = (112)
Closing 2018 balance = $328
5) Journal entries to record (a) the copier’s sale;
(b) the adjustment on December 31, 2017, to recognize the warranty expense; and
(c) the repairs that occur in November 2018
Date
particulars
Debit
Credit
August 16 2017
cash
$11,000
sales
$11,000
August 16 2017
cost of goods sold
$5,500
merchandise inventory
$5,500
Dec 31 , 2017
warranty expense
$440
estimated warranty liability
$440
Nov 22 , 2018
estimated warranty liability
$112
repair parts inventory
$112
Date
particulars
Debit
Credit
August 16 2017
cash
$11,000
sales
$11,000
August 16 2017
cost of goods sold
$5,500
merchandise inventory
$5,500
Dec 31 , 2017
warranty expense
$440
estimated warranty liability
$440
Nov 22 , 2018
estimated warranty liability
$112
repair parts inventory
$112
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