Answer and Explanation:
1. The computation of warranty expenses is shown below:-
Warranty expense in 2018 = Warranty for a customer × Rate of sales
= $13,000 × 6%
= $13,000 × 0.06
= $780
2. The computation of estimated warranty liability is shown below:-
As we have calculated in part 1 so it is same that is
Estimated warranty liability in 2018 = $780
3. The computation of Warranty expenses in 2019 is shown below:-
In 2019 no warranty expense is there so the correct answer is $0
4. The computation of estimated warranty liability is shown below:-
Estimated warranty liability = Warranty expenses in 2018 - Repairs cost
= $780 - $121
= $659
5. The Journal entries is shown below:
a. Cash Dr, $13,000
To Sales $13,000
(Being cash is recorded)
b. Cost of goods sold Dr, $6,500
To Merchandise inventory $6,500
(Being cost of goods sold is recorded)
c. Warranty expense $650
To Estimated warranty liability $650
(Being warranty expenses is recorded)
Estimated warranty liability Dr, $121
To Repair parts inventory $121
(Being warranty liability is recorded)
