Question

Balthrop Appliance Company begins production on a new dishwasher carrying a one-year manufacturer's warranty against defects. Estimates based on industry experience indicate that warranty costs will be 4% of sales. Balthrop sold $2 million of dishwashers in December 2014, the first month the dishwasher was available. During January 2015, Balthrop incurred $7,000 in costs to satisfy warranty claims. Balthrop uses the accrual basis method.

a. Record sale of dishwashers in 2014.
b. Record warranty adjusting entry in 2014.
c. Record warranty costs in 2015.

Answer 1

To record the sale of dishwashers in 2014, debit the Accounts Receivable and credit the Sales Revenue accounts. To record the warranty adjusting entry in 2014, debit warranty expense and credit warranty liability.

Step-by-step explanation:

To answer these questions, we need to follow the steps for recording the sale of dishwashers in 2014, the warranty adjusting entry in 2014, and the warranty costs in 2015.

1. a. To record the sale of dishwashers in 2014, we need to debit the Accounts Receivable and credit the Sales Revenue accounts for $2 million.
2. b. To record the warranty adjusting entry in 2014, we need to debit Warranty Expense for 4% of the sales ($80,000) and credit Warranty Liability for the same amount.
3. c. To record the warranty costs in 2015, we need to debit Warranty Liability for $7,000 and credit Cash for the same amount.