Question

Ecco Company sold $147,000 of kitchen appliances with six-month warranties during September. The cost to repair defects under the warranty is estimated at 6% of the sales price. On October 15, a customer required a $120 part replacement, plus $84 labor under the warranty.

a. Provide the journal entry for the estimated expense on September 30.
b. Provide the journal entry for the October 15 warranty work. If an amount box does not require an entry, leave it blank.

Answer 1

a. Provide the journal entry for the estimated expense on September 30.

September 30, warranty liability

Dr Warranty expense 8,820

Cr Warranty liability 8,820

b. Provide the journal entry for the October 15 warranty work. If an amount box does not require an entry, leave it blank.

October 15, warranty work

Dr Warranty liability 204

Cr Inventory - parts 120

Cr wages payable 84

Warranty expense must be recognized during the period that the associated sales are made, and as the expenses are accrued, you should debit the warranty liability account.