Question

Hitzu Co. sold a copier costing $6,500 with a two-year parts warranty to a customer on August 16, 2017, for $13,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2018, the copier requires on-site repairs that are completed the same day. The repairs cost $145 for materials taken from the repair parts inventory. These are the only repairs required in 2018 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 4% of dollar sales. It records warranty expense with an adjusting entry at the end of each year. 1. How much warranty expense does the company report in 2017 for this copier? Varranty expense 2. How much is the estimated warranty liability for this copier as of December 31, 2017? ted warranty liability 3. How much warranty expense does the company report in 2018 for this copier? Warranty expense 4. How much is the estimated warranty liability for this copier as of December 31, 2018? Estimated warranty liability 5. Prepare journal entries to record (a) the copier's sale; (b) the adjustment on December 31, 2017, to recognize the warranty expense; and (c) the repairs that occur in November 2018.

Answer 1

The warranty expense reported in 2017 for this copier is $520. The estimated warranty liability for this copier as of December 31, 2017, is also $520. The warranty expense reported in 2018 for this copier is $0, and the estimated warranty liability for this copier as of December 31, 2018, is $520.

Step-by-step explanation:

1. The warranty expense reported in 2017 for this copier can be calculated by multiplying the dollar sales by the expected warranty costs percentage. The dollar sales for this copier in 2017 is $13,000, so the warranty expense would be $13,000 x 4% = $520.

2. The estimated warranty liability for this copier as of December 31, 2017, would be the same as the warranty expense reported in 2017, which is $520.

3. In 2018, the copier had repairs that cost $145. The warranty expense reported in 2018 can be calculated by multiplying the dollar sales for 2018 by the expected warranty costs percentage. The dollar sales for this copier in 2018 is $0 (since repairs are not considered sales), so the warranty expense would be $0 x 4% = $0.

4. The estimated warranty liability for this copier as of December 31, 2018, would be the same as the warranty liability as of December 31, 2017, which is $520.

5. Journal Entries:

(a) Copier's Sale:

• Debit: Cash - $13,000
• Credit: Sales Revenue - $13,000

(b) Adjustment on December 31, 2017, to Recognize Warranty Expense:

• Debit: Warranty Expense - $520
• Credit: Estimated Warranty Liability - $520

(c) Repairs in November 2018:

• Debit: Estimated Warranty Liability - $145
• Debit: Repair Expense - $145
• Credit: Repair Parts Inventory - $145

Answer 2

Step-by-step explanation:

1. Warranty expense 2017=$13000*0.05=$650

2. Estimated warranty liability liability 2017=$13000*5%=$650

3. Warranty expense 2018=0

4. Astimated warranty liability (31.12.2018)=650-145=$505

5. Journal entries:

Dr Cash $13000

Cr Sales $13000

Dr COGS 6500

Cr Merchendise inventory 6500

Dr Warranty expense 650

Cr Warranty liability 650

Dr Warranty liability 145

Cr Repairs part inventory 145