Question

During August, Boxer Company sells $362,000 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 $12,200 before adjustment. Customers returned merchandise for warranty repairs during the month that used $8,800 in parts for repairs. The entry to record the estimated warranty expense for the month is:

Answer 1

Warranty expense 14,700 debit

Warranty liability 14,700 credit

Step-by-step explanation:

The idea is similar to allowance for doubful accounts.

We need match the chance of uncollectible found to the period on when the sale ocour.

Here we are matching the warrant cost, which can be anytime in the future.

With the time on which the sold is done, recognizing an expense.

Expected warranty liability: 5% of sales

362,000 x 5% = $18,100

Current balance (3,400)

Adjustment 14,700

The returned goods had a cost of 8,800 this are accounted against warrant liability. so the balance decreased to 3,400