Question

On December 1, Bruney Company introduces a new product that includes a one-year warranty on parts. In December, 1,000 units are sold. Management believes that 5% of the units will be defective and that the average warranty costs will be $90 per unit.

Required:
Prepare the adjusting entry at December 31 to accrue the estimated warranty cost, assuming no warranty claims have been honored to date.

Answer 1

Dr Warranty Expense 4,500

Cr Warranty liability 4,500

Step-by-step explanation:

Preparation of the journal entry at December 31

Based on the information given we were told that the company new product 1,000 units were sold in December in which the Management of the company think that 5% of the units sold will be damaged and that the warranty costs will be the amount of $90 per unit which means that the adjusting journal entry at December 31 in order to accrue the estimated warranty cost will be recorded as:

Dr Warranty Expense 4,500

(1,000x 90x 5%)

Cr Warranty liability 4,500