Question

On September 1, Home Store sells a mower (that costs $200) for $500 cash with a one-year warranty that covers parts. Warranty expense is estimated at 8% of sales. On January 24 of the following year, the mower is brought in for repairs covered under the warranty requiring $35 in materials taken from the Repair Parts Inventory. Prepare the September 1 entry to record the mower sale (and cost of sale) and the January 24 entry to record the warranty repairs.

Answer 1

Answer and Explanation:

The journal entries are shown below:

On Sep 1

Cash $500  

          To Sales revenue $500

(Being the sale is recorded))  

On Sep 1

Cost of goods sold $200

         To Finished goods inventory  $200

(Being the the cost of mower sales is recorded)  

On Sep 1

Warranty expense (8% × $500) $40

         To Warranty liability  $40

(Being the estimated warranty expense is recorded)  

On Jan 24

Warranty liability $35

           To Repair parts inventory  $35

(being the cost of warranty repairs is recorded)