In: Accounting
A company started providing a one-year warranty on one of their products. There were a
total of 2,100 of these products sold during 20x5. The company estimates that the cost of
warranty repairs will be as follows:
Amount Probability
$0 50%
40,000 15%
80,000 15%
105,000 12%
225,000 8%
Total warranty costs incurred during the year amounted to $13,200 and were charged to
cost of goods sold.
Required – Prepare the adjusting journal entries required at December 31, 20x5.
Account | Debit | Credit |
Warranty expense | $ 48,600 | |
Warranty liability | $ 48,600 | |
(to record estimated warranty) | ||
Warranty liability | $ 13,200 | |
Cost of goods sold | $ 13,200 | |
(to record warranty paid adjustment) |
Amount | × probability | Warranty |
- | 50% | - |
40,000 | 15% | 6,000 |
80,000 | 15% | 12,000 |
105,000 | 12% | 12,600 |
225,000 | 8% | 18,000 |
Expected warranty | 48,600 |