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 $104 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 3% of dollar sales. It records warranty expense with an adjusting entry at the end of each year.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

Answer 1

Answer:

1) 390 warranty expense

2) 390 warranty liability

3) zero as the amount is deducted from the liability

Explanation:

the warranty expense was determinated using an allowance of 3% of the sale:

$ 13,000 x 3% = $ 390

the warranty liability will be created for the same amount

On 2018 it will decrease the liability against inventory It will not recognize a warranty expense.