Question

On November 10, 2017, Singh Electronics began to buy and resell scanners for $47 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 $27. Singh estimates warranty costs based on 15% of the number of units sold. The following transactions occurred in 2017 and 2018 (ignore GST and PST):

	2017
Nov.	15	Sold 4,000 scanners for $188,000 cash.
	30	Recognized warranty expense for November with an adjusting entry.
Dec.	8	Replaced 280 scanners that were returned under the warranty.
	15	Sold 6,800 scanners.
	29	Replaced 66 scanners that were returned under the warranty.
	31	Recognized warranty expense for December with an adjusting entry.
	2018
Jan.	14	Sold 340 scanners.
	20	Replaced 88 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 2017?

	Warranty Expense November December Total $

2. How much warranty expense should be reported for January 2018? (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, 2017?

	Warranty expense for November Warranty expense for December Cost of replacing items in December Liability balance

4. What is the balance of the estimated warranty liability as of January 31, 2018?

	Beginning balance Warranty expense for January Cost of replacing items in January Liability balance

5. Prepare journal entries to record ALL transactions and year-end adjustments (ignore sales taxes).

1.Record the sale of scanners to customers.

2.Record the cost of the November 15 sale.

3.Record the scanner warranty expense and liability at 15% of the units sold.

4.Record the cost of scanner warranty replacements.

5.Record the sale of scanners to customers.

6.Record the cost of the December 15 sale.

7.Record the cost of scanners warranty replacements.

8.Record the scanner warranty expense and liability at 15% of the units sold.

9.Record the sale of scanners to customers.

10.Record the cost of the January 14 sale.

11.Record the cost of scanner warranty replacements.

12.Record the scanner warranty expense and liability at 15% of the units sold.

Answer 1

	ans 1	Warranty Expense
	November (188000*15%)	28200
	December (6800*47*15%)	47940
	Total
	ans 2warranty expense should be reported for January 2018	2397
	(340*47*15%)
	3. estimated warranty liability as of December 31, 2017
	Warranty expense for November A	28200
	Warranty expense for December B	47940
	Cost of replacing items in December (280+66)*27 C	9342
	Liability balance A+B-C	66798
	4. Estimated warranty liability as of January 31, 2018?
	Beginning balance	66798
	Warranty expense for January	2397
	Cost of replacing items in January (88*27)	-2376
	Liability balance	66819
Date	Accounts Title	Dr	Cr
15-Nov	Cash	$188,000
	Sales		$188,000
	Cost of Goods sold (4000*27)	$108,000
	Merchandise Inventory		$108,000
30-Nov	Warranty expenses	$28,200
	Estimated warranty liability		$28,200
8-Dec	Estimated warranty liability (280*27)	$7,560
	Merchandise Inventory		$7,560
15-Dec	Cash	$319,600
	Sales		$319,600
	Cost of Goods sold (6800*27)	$183,600
	Merchandise Inventory		$183,600
29-Dec	Estimated warranty liability	1782
	Merchandise Inventory (66*27)		1782
31-Dec	Warranty expenses	$47,940
	Estimated warranty liability		$47,940
14-Jan	Cash (340*47)	$15,980
	Sales		$15,980
	Cost of Goods sold (340*27)	$9,180
	Merchandise Inventory		$9,180
20-Jan	Estimated warranty liability	2376
	Merchandise Inventory (88*27)		2376
31-Jan	Warranty expenses	$2,397
	Estimated warranty liability		$2,397