Question

e5A. Boulware Company manufactures and sells electronic games. Each game costs $25 to produce, sells for $45, and carries a warranty that provides for free replacement if it fails during the two years following the sale. In the past, 7 percent of the games sold had to be replaced under the warranty. During July, Boulware sold 13,000 games, and 1,400 games were replaced under the warranty.

1. Prepare a journal entry to record the estimated liability for product warranties during the month.

2. Prepare a journal entry to record the games replaced under warranty during the month.

Answer 1

Based on the question above, we can pass the following journal entries in the books of Boulware Company:-

	Particulars	Debit	Credit
1.)
July	Warranty expense A/c Dr.	40,950
	To Estimated Warranty liability A/c		40,950
	(To record the estimated warranty liability for the sales made)
	(13,000 games * $45 per game * 7% warranty liability)
2.)
July	Estimated Warranty Liability A/c Dr.	63,000
	To Electronic Games Inventory A/c		63,000
	(To record the warranty expense during the month of July)
	(1,400 games *45 per game)