Question

Hitzu Co. sold a copier costing $4,800 with a two-year parts warranty to a customer on August 16, 2018, for $6,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2019, the copier requires on-site repairs that are completed the same day. The repairs cost $209 for materials taken from the repair parts inventory. These are the only repairs required in 2019 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 2018 for this copier?
2. How much is the estimated warranty liability for this copier as of December 31, 2018?
3. How much warranty expense does the company report in 2019 for this copier?
4. How much is the estimated warranty liability for this copier as of December 31, 2019?
5. Prepare journal entries to record (a) the copier’s sale; (b) the adjustment on December 31, 2018, to recognize the warranty expense; and (c) the repairs that occur in November 2018.

Answer 1

Answer:

1) $240 warranty expense

2) $240 warranty liaiblity

3) zero as decreases the warranty laibility

4) 240 beginning - 209 used = 31 ending

5)

cash    6,000 debit

 sales revenues 6,000 credit

--to record sale--

warranty expense 240 debit

  warranty liability          240 credit

--to record prevision for warranty expenses--

warranty liability     209 debit

     inventory                   209 credit

--to record use of the warranty from the customer--

Explanation:

1) sales x expected warranty = 6,000 x 0.04 = 240

2) it will be for the 240 as the accounting works with double-entry