Question

During 2017, Seagul Outboards sold 200 outboard engines for $250 each. The engines are under a one-year warranty for parts and labor, and from past experience, the company estimates that, on average, warranty costs will equal $20 per engine. As of December 31, 2017, 50 engines had been serviced at a total cost of $1,400. During 2018, engines were serviced at a total cost of $2,600. Assume that all repairs used cash.

Prepare the journal entries that would be recorded at the following times:
a. During 2017 to record the sale of the engines.
b. During 2017 to accrue the contingent loss on warranties.
c. During 2017 and 2018 to record the actual warranty cost incurred.

Answer 1

No. Date Account Titles and Explanation Debit Credit

(1) 2017 Cash $50,000

(200 outboard engines * $250)

Sales revenue $50,000

(Sold outboard engines.)

(2) 2017 Warranty expenses $40,000

(200 outboard engines * $20)

Estimated warranty liability $40,000

(Estimated warranty expense.)

(3) 2017 Estimated warranty liability $1,400

(Serviced 60 outboard engines)

Cash $1,400

(Made repairs under warranty)

2017 Estimated warranty liability $2,600

(Serviced remaining outboard engines)

Cash $2,600

(Made repairs under warranty.)