Question

In the current year, Hanna Company reported quality-assurance warranty expense of $189,000 and the warranty liability account increased by $17,000. What amount of warranty costs were paid during the year?

Answer 1

Answer:

$172,000

Explanation:

The total warranty expense reported in the current year is $189,000, which is recorded as an increase in warranty expense account.

The amount of $17,000 is recorded as an increase in warranty liability account. It is because this amount is not paid in this year but in subsequent years.

The remaining amount of $172,000, which is equal to $189,000 - $17,000, is the total amount of warranty costs that were paid during the year and is recorded as a decrease in cash account.

The accounting journal entries will be as follow:

Dr  Warranty expense    $189,000

   Cr Warranty Liability                     $17,000

   Cr Cash                                          $172,000