Question

Pronghorn Appliances provides a 3-year warranty with one of its products which was first sold in 2017. Pronghorn sold $1,840,000 of products subject to the warranty. Pronghorn expects $202,000 of warranty costs over the next 3 years. In 2017, Pronghorn spent $106,000 servicing warranty claims. Prepare Pronghorn’s journal entries to record the sales (ignore cost of goods sold) and the December 31 adjusting entry, assuming the expenditures are inventory costs; Pronghorn now expects future warranty costs of $115,000

Answer 1

See the explanation below.

Step-by-step explanation:

Balance in the warranty liability account after claim = $202,000 - $106,000 = $96,000

Amount needed to reduce expected warranty to $115,000 = $155,00 - $96,000 = $19,000

The journal entries will be as follows:

Details Dr ($) Cr ($) .

Cash 1,840,000

Sales revenue 1,840,000

To record the sales of products .

Warranty expenses 202,000

Estimated warranty liability 202,000

To record the expected warranty expenses .

Warranty liability account 106,000

Inventory 106,000

To record the warranty claim .

Warranty expenses 19,000

Estimated warranty liability 19,000

To record the reduction of expected warranty expenses to $115,000.