Question

Hardin Widget Manufacturing began operations in January 2021. Hardin sells widgets that carry a two-year manufacturer's warranty against defects in workmanship. Hardin's management projects that 2% of the widgets will require repair during the first year of the warranty while approximately 6% will require repair during the second year of the warranty. The widgets sell for $300 each. The average cost to repair a widget is $40. The company sells 65% of the widgets to retail customers who must pay a 6% sales tax. Sales and warranty information for 2021 and 2022 are as follows: 2021: Sold 300 widgets on account; incurred warranty expenditures of $400 for widget repairs. 2022: Sold 400 widgets on account; actual payments for warranty expenditures were $600. Required: 1. Prepare journal entries that summarize the sales and any aspects of the warranty for 2021. 2. Prepare journal entries that summarize the sales and any aspects of the warranty for 2022.

Answer 1

Answer:

1)

to record sales during 2021

Dr Accounts receivable 93,510

    Cr Sales revenue 90,000

    Cr Sales tax payable 3,510

to record warranty liability during 2021

Dr Warranty expense 960

    Cr Warranty liability 960

warranty expense = 300 units x 8% x $40 = $960

to record incurred warranty expenditures

Dr Warranty liability 400

    Cr Inventory/wages payable 400

2)

to record sales during 2022

Dr Accounts receivable 124,680

    Cr Sales revenue 120,000

    Cr Sales tax payable 4,680

to record warranty liability during 2021

Dr Warranty expense 1,280

    Cr Warranty liability 1,280

warranty expense = 400 units x 8% x $40 = $1,280

to record incurred warranty expenditures

Dr Warranty liability 600

    Cr Inventory/wages payable 600