Question

During August, Boxer Company sells $348,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 5% of the selling price. The warranty liability account has a credit balance of $11,000 before adjustment. Customers returned merchandise for warranty repairs during the month that used $7,600 in parts for repairs. The entry to record the estimated warranty expense for the month is:

Answer 1

Answer:

Dr Estimated Warranty Liability $8,600

Cr               Spare Parts Inventory  $8,600

Explanation:

The estimated warranty claim is worth $7,600 which means that the warranty claim must be debited by this amount as it was previously forecasted to be at $11,000 and in this month, the claim was worth $7,600. So decrease in warranty liability is necessary. Furthermore, the Spare Parts Inventory would be credited as the Spare parts would be used to fix the inventory which must be of $7,600 in value.

The double entry to record Warranty Repairs would be as under:

Dr Estimated Warranty Liability $8,600

Cr               Spare Parts Inventory  $8,600