Question

Merritt Equipment Company sells computers for $1,630 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 950 computers. Based on past experience, the company has estimated the total 2-year warranty costs as $40 for parts and $60 for labor. (Assume sales all occur at December 31, 2017.)

In 2018, Merritt incurred actual warranty costs relative to 2017 computer sales of $11,200 for parts and $16,800 for labor.
Required:
a. Under the expense warranty approach, give the entries to reflect the above transactions (accrual method) for 2017 and 2018.
i. To record sale of computers
ii. To record estimated warranty expense
iii. To record expenditures towards warranty

Answer 1

For this given question, find the entries recorded on the transactions (accrual method) for 2017 and 2018.

Step-by-step explanation:

Solution

Entries on the above transactions (accrual method) for 2017 and 2018.

Date Particulars Debit ($) Credit ($)

2017 Accounts Receivable

(1630*950) 1548500

Sales revenue 1548500

(To record sale of computers)

2017 Warranty Expense

(40+60)*950 95000

Warranty Liability 95000

To record liability against warranty costs)

2018 Warranty Liability 28000

Inventory 11200

Cash, Accrued payroll 16800