Question

Google provides a 1 year warranty on its cell phones. At the end of 2019 Google estimates they will spend $2m in 2020 to repair/replace cell phones purchased in 2019 under warranty. Google ends up spending $1.9m in 2020 to repair/replace cell phones under warranty. What is the journal entry they would record in 2019?"

Answer 1

Answer:

DR Warranty Payable $1.9m; CR Cash $1.9m.

Explanation:

When a company creates a payable it is obligated to pay a certain amount within a particular period.

In this case Google provides a 1 year warranty on its cell phones, so any claims that will attract repair or replacement is a payable obligation.

In the year 2019 they actually paid $1.9 million for repairs and replacements.

So the journal entry to be passed is DR Warranty Payable $1.9m; CR Cash $1.9m.