Question

EarlKeen Co. sold $260,000 of equipment during January under a one-year warranty. The cost to repair defects under the warranty is estimated at 4% of the sales price. On August 15, a customer required a $100 part replacement plus $50 of labor under the warranty. Provide the journal entry for (a) the estimated warranty expense on January 31 for January sales on page 10 of the journal and (b) the August 15 warranty work on page 14 of the journal. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

warranty expense 10,400 (260,000 x 4%)

warranty liablity 10,400

warranty liability 150

wages payable 50

inventory 100

Step-by-step explanation:

we recognize the expected warranty expense at the moment of the sale.

Then expenses associate with the warranty will decrease the prevision "warranty liability"

The part used come from the company's inventory

and the wages for work on the product, will have to be paid.

Note: it could be cash directly instead of using wages payable account. But because there is no information about those wages being paid I assume are not.