Question

Hitzu Co. sold a copier costing $5,500 with a two-year parts warranty to a customer on August 16, 2015, for $11,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2016, 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 2016 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 3% 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 2015 for this copier?2) How much is the estimated warranty liability for this copier as of December 31, 2015?3) How much warranty expense does the company report in 2016 for this copier?4) How much is the estimated warranty liability for this copier as of December 31, 2016?5) Prepare journal entries to record (a) the copier's sale; (b) the adjustment on December 31, 2015, to recognize the warranty expense; and (c) the repairs that occur in November 2016.

Answer 1

Details Amt $

Copier sales value Aug 16.2015. 11,000

Warranty Expense 3% of $ sales = 330

1- As the full sales recognized in 2015,

warranty expense of $330 will be recognized

in 2015.

2 Warranty Liability at 2015 end will be $330

3 Warranty Expense in 2016 will be nil.

4 Estimated warranty liability at 2016 end =

(330-145)=$185

Accounting Entries

Date Account Title Dr $ Cr $

Aug 16.2015. Cash 11,000

Sales Revenue 11,000

Dec 31.2015. Warranty Expense 330

Warranty Liability 330

Nov 22.2016. Warranty Liability 145

Repair Parts Inventory 145