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

ekkarill92 answered 1 year ago

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