Question

On November 10, 2020, Singh Electronics began to buy and resell scanners for $64 each. Singh uses the perpetual system to account for inventories. The scanners are covered under a warranty that requires the company to replace any non-working scanner within 90 days. When a scanner is returned, the company simply throws it away and mails a new one from inventory to the customer. The company’s cost for a new scanner is only $44. Singh estimates warranty costs based on 20% of the number of units sold. The following transactions occurred in 2020 and 2021 (ignore GST and PST):

	2020
Nov.	15	Sold 3,500 scanners for $224,000 cash.
	30	Recognized warranty expense for November with an adjusting entry.
Dec.	8	Replaced 240 scanners that were returned under the warranty.
	15	Sold 6,400 scanners.
	29	Replaced 58 scanners that were returned under the warranty.
	31	Recognized warranty expense for December with an adjusting entry.
	2021
Jan.	14	Sold 320 scanners.
	20	Replaced 80 scanners that were returned under the warranty.
	31	Recognized warranty expense for January with an adjusting entry.

Required:
1. How much warranty expense should be reported for November and December 2020?

2. How much warranty expense should be reported for January 2021? (Round your intermediate calculations and final answer to the nearest whole number.)

3. What is the balance of the estimated warranty liability as of December 31, 2020?

4.What is the balance of the estimated warranty liability as of January 31, 2021?

. Prepare journal entries to record ALL transactions and year-end adjustments (ignore sales taxes). (Round intermediate calculations and final answer to the nearest whole number.)

Answer 1

Date	Account Titles	Debit	Credit
Nov-15	Cash	$      224,000
	Sales Revenue		$      224,000
	Cost of Goods Sold	$      154,000
	Inventory		$      154,000
Nov-30	Warranty Expense	$         30,800
	Estimated Warranty Liability		$         30,800
Dec-08	Estimated Warranty Liability	$         10,560
	Inventory		$         10,560
Dec-15	Cash	$      409,600
	Sales Revenue		$      409,600
	Cost of Goods Sold	$      281,600
	Inventory		$      281,600
Dec-29	Estimated Warranty Liability	$           2,552
	Inventory		$           2,552
Dec-31	Warranty Expense	$         56,320
	Estimated Warranty Liability		$         56,320
Jan-14	Cash	$         20,480
	Sales Revenue		$         20,480
	Cost of Goods Sold	$         14,080
	Inventory		$         14,080
Jan-20	Estimated Warranty Liability	$           3,520
	Inventory		$           3,520
Jan-31	Warranty Expense	$           2,816
	Estimated Warranty Liability		$           2,816

1. Warranty Expense
November - $30800, December - $56320

2. Warranty Expense
January - $2816

3. Estimated warranty liability as of December 31, 2020 = $74008

4. Estimated warranty liability as of Jan 31, 2021 = $73304