Question

Woodmier Lawn Products introduced a new line of commercial sprinklers in 2020 that carry a one-year warranty against manufacturer’s defects. Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the industry. Based on that experience, warranty costs were expected to approximate 2% of sales. Sales of the sprinklers in 2020 were $2,500,000. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product:
General Journal Debit Credit

Accrued liability and expense
Warranty expense(2% x 2,700,000) 54,000
Warranty liability 54,000

Actual expenditures (summary entry)
Warranty liability 24,00
Cash 24,00

In late 2021, the company's claims experience was evaluated and it was determined that claims were far more than expected—3% of sales rather than 2%.

Required:
1. Assuming sales of the sprinklers in 2021 were $3.8 million and warranty expenditures in 2021 totaled $90,000, prepare any journal entries related to the warranty.
2. Assuming sales of the sprinklers were discontinued after 2020, prepare any journal entry(s) in 2021 related to the warranty.

Answer 1

Answer:Woodmier journal $

1. Date

2021

Warranty expenses Dr 90,000

Warranty liability Cr. 90,000

Narration. Amount of warranty incurred for the year.

2021

Warranty liability Dr 90,000

Bank/Cash. Cr. 90,000

Narration. Payment of warranty expenditures.

2. No entry require

Explanation:

The warranty expenses since is a period of one year can be accounted for at the end of the year without requirements for provision at the beginning of the year. The actual warranty is debited to the income statement and the liability recognized as a creditor until payment.

The discontinuation of the sales of the product in 2021 will not affect the already incurred warranty liability and the account posting thereon in the following years.