Question

Accrued Product Warranty Fosters Manufacturing Co. warrants its products for one year. The estimated product warranty is 4% of sales. Assume that sales were $379,000 for January. On February 7, a customer received warranty repairs requiring $250 of parts and $105 of labor.

a. Journalize the adjusting entry required at January 31, the end of the first month of the current fiscal year, to record the accrued product warranty.
b. Journalize the entry to record the warranty work provided in February.

Answer 1

a.

Date Account Title Debit Credit

Jan. 31 Product Warranty Expense $15,160

Product Warranty Payable $15,160

Working:

Product warranty expense = Amount of sales for January * Estimated product warranty

= 379,000 * 4%

= $15,160

b.

Date Account Title Debit Credit

Jan. 31 Product Warranty Payable $355

Supplies $250

Wages payable $105

The costs of the warranty will be taken from the liability account for warranties because the warranty payable account represents that the company owes warranty repairs which the customer just came to collect.