Question

In: Accounting

A company started providing a one-year warranty on one of their products. There were a total...

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.

Solutions

Expert Solution

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

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