Question

Corrector guarantees its snowmobiles for three years. Company experience indicates that warranty costs will be approximately 5 % of sales. Assume that the Sierra dealer in Colorado Springs made sales totaling $ 800,000 during 2016. The company received cash for 30​% of the sales and notes receivable for the remainder. Warranty payments totaled $12,000 during 2016.
Required:
a. Record the sales, warranty expense, and warranty payments for the company. Ignore cost of goods sold.
b. Post to the Estimated Warranty Payable T-account. At the end of 2014, how much in Estimated Warranty Payable does the company owe? Assume the Estimated Warranty Payable is SO on January 1, 2014.

Answer 1

Answer:

A.CORRECTOR JOURNAL ENTRIES

1.2016

Dr Cash 240,000

Dr Note receivable 560,000

Cr Sales Revenue 800,000

2. Record of the warranty expense.

2016

Dr Warranty Expense 40,000

Cr Estimated Warranty Payable 40,000

3.To Record the warranty payments for the company.

2016

Dr Estimated Warranty Payable 12,000

Cr Cash12,000

B . T-ACCOUNT

DEBIT SIDE

The Estimated Warranty Payable will be:

Dr Payments12,000

CREDIT SIDE

Beginning balance 0

Accrual 40,000

Ending balance 28,000

Explanation:

A. Preparation of the Record of the sales, warranty expense, and warranty payments for the company while Ignore cost of goods sold.

CORRECTOR JOURNAL ENTRIES

2016

Dr Cash 240,000

(30%× Sales amount $800,000)

Dr Notes Receivable 560,000

(800,000-240,000)

Cr Sales Revenue 800,000

(560,000+240,000)

To record sales for 2016

Record of the warranty expense.

2016

Dr Warranty Expense 40,000

(5%×800,000)

Cr Estimated Warranty Payable 40,000

To record the accrue warranty payable.

To Record the warranty payments for the company.

2016

Dr Estimated Warranty Payable12,000

Cr Cash12,000

To record Warranty payments.

B . T-ACCOUNT

DEBIT SIDE

The Estimated Warranty Payable will be:

Dr Payments12,000

CREDIT SIDE

Beginning balance 0

Accrual 40,000

Ending balance 28,000

(40,000-12,000)