Question

OSE provides a one year warranty on all its electronic products. The warranty is an assurance against manufacturing defects. In December 2016, OSE sold $500,000 worth of electronic products. The cost of the goods sold was $250,000 and OSE estimates the cost of repairs under the warranty to be $5,000.
During the financial year ended December 2017, OSE incurred cost of $3,000 to repair the products under warranty that were sold in December 2016. It also incurred costs of $1,000 on repairs that did not fall under the warranty agreement and charged its customers $1,200 for these repairs.
OSE complies with FRS 18 Revenue and FRS 37 Provision, Contingent Liabilities and Contingent Assets.

Prepare journal entries to record the sale of the electronic products and the warranty for the financial years ended 31 December 2016 and 31 December 2017.

Answer 1

Answer:-

Date	Account Title	Debit	Credit
Dec.31, 2016	Cash	500,000
	Sales revenue		500,000
	(to record sale of electronic goods)
Dec.31, 2016	Cost of goods sold	250,000
	Inventory		250,000
	(to record cost of goods sold)
Dec.31, 2016	Warranty expense	5,000
	Estimated warranty liability		5,000
	(to set up estimated liability on warranty)
Dec.31, 2017	Estimated warranty liability	3,000
	Cash		3,000
	(to recod payment of actual cost)
Dec.31, 2017	Cash	1,200
	Revenue		1,200
	(to record repair charge received from customer)
Dec.31, 2017	Repair expense	1,000
	Cash		1,000
	(to record repair expense incurred)