Question

Maas, Inc., sells washers and dryers that include a maximum one-year warranty covering parts. Past experience shows that warranty expense averages about 2 percent of the selling price of each washer and dryer. Net sales totaled $400,000 during the year ending December 31.

Answer 1

Total estimated warranty liability = 2% * Net sales

Total estimated warranty liability = 2% * $400000 = $8000

There will be an adjusting entry to record the warranty expense for the year on December 31..

Journal entry for warranty expense on December 31 will be:

Debit  Warranty expense                                      $8000

Credit  Accrued or Estimated warranty liability     $8000

Warranty is an expense, so it is debited. Later on, in the following months. when the actual warranty claim arises, then we will debit the accrued or estimated warranty liability account and credit the inventory account.

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