Question

Hitzu Co. sold a copier costing $6,500 with a two-year parts warranty to a customer on August 16, 2017, for $13,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2018, the copier requires on-site repairs that are completed the same day. The repairs cost $145 for materials taken from the repair parts inventory. These are the only repairs required in 2018 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 4% of dollar sales. It records warranty expense with an adjusting entry at the end of each year. 1. How much warranty expense does the company report in 2017 for this copier? Varranty expense 2. How much is the estimated warranty liability for this copier as of December 31, 2017? ted warranty liability 3. How much warranty expense does the company report in 2018 for this copier? Warranty expense 4. How much is the estimated warranty liability for this copier as of December 31, 2018? Estimated warranty liability 5. Prepare journal entries to record (a) the copier's sale; (b) the adjustment on December 31, 2017, to recognize the warranty expense; and (c) the repairs that occur in November 2018.

Answer 1

Answer:

Explanation:

1. Warranty expense 2017=$13000*0.05=$650

2. Estimated warranty liability liability 2017=$13000*5%=$650

3. Warranty expense 2018=0

4. Astimated warranty liability (31.12.2018)=650-145=$505

5. Journal entries:

Dr  Cash      $13000

     Cr        Sales     $13000

Dr COGS 6500

     Cr Merchendise inventory 6500

Dr Warranty expense 650

     Cr Warranty liability       650

Dr Warranty liability    145

     Cr Repairs part inventory 145