Question

Inline Incorporated manufactures skates and equipment for in-line skating. The company offers a one-year warranty on all products. During 2014, the company recorded net sales of $4,127.8 million. Historically, about 3% of all sales are returned under warranty and the cost of repairing and or replacing goods under warranty is about 50% of retail value. Assume that at the start of the year Inline’s balance sheet included an accrued warranty liability of $15.4 million and at the end of the year, the accrued warranty liability balance was $11.5 million.

Required:

Use FSET to record

1. Inline’s warranty expense for 2014.

2. Inline’s payment during the year to repair and or replace goods under warranty

Answer 1

Warranty liability ledger a/c
2014	Debit	Credit
Beginning balance (Given)		15.4
Warranty expense for 2014(4127.8*3%)		123.834	Liability provided , on this year's sales at the usual % age(3%*4127.8)
Pmt. during the year to repair and or replace goods under warranty(Bal.fig.)	127.734		when warranty claims are attended--inventory (for replacement)& spareparts (for repairs) are credited.
Ending balance (Given)	11.5
	139.234	139.234
So, the answers are:
1. Inline’s warranty expense for 2014.	123.834	millions
2. Inline’s payment during the year to repair and or replace goods under warranty	127.734	millions