Question

Denson Machinery Company begins production on a new machine in July 2014, and sells 100 units at $5,000 each by its year-end, Dec. 31, 2014. Each machine is under warranty for one year. Denson estimates based on past experience with a similar machine, that the warranty cost will average $200 per unit. Further, as a result of parts replacements and services rendered in compliance with machinery warranties, it incurred $4,000 in warranty costs in 2014 and $16,000 in 2015.

a. Record sale of machines in 2014.
b. Record warranty expense, July through Dec. 2014.
c. Record warranty costs incurred in 2015 (on 2014 machinery sales)

Answer 1

To record the sale of machines in 2014, debit Accounts Receivable and credit Sales. For warranty expense from July to December 2014, debit Warranty Expense and credit Warranty Liability. For warranty costs incurred in 2015, debit Warranty Liability and credit Warranty Costs Incurred.

Step-by-step explanation:

To record the sale of machines in 2014, you would debit the Accounts Receivable account for the total sales amount and credit the Sales account. The journal entry would be:

• Debit: Accounts Receivable - $500,000
• Credit: Sales - $500,000

To record the warranty expense from July to December 2014, you would debit the Warranty Expense account and credit the Warranty Liability account. The journal entry would be:

• Debit: Warranty Expense - $10,000 (100 units x $100 per unit)
• Credit: Warranty Liability - $10,000 (100 units x $100 per unit)

To record the warranty costs incurred in 2015 for the 2014 machinery sales, you would debit the Warranty Liability account and credit the Warranty Costs Incurred account. The journal entry would be:

• Debit: Warranty Liability - $20,000 (100 units x $200 per unit)
• Credit: Warranty Costs Incurred - $20,000 (100 units x $200 per unit)