Jonesy, Inc. sold 150 High Quality DVD players in the amount of $225 each during 2014...

Jonesy, Inc. sold 150 High Quality DVD players in the amount of $225 each during 2014 (for cash). The DVD's have a cost basis of $175 to the company. Jonesy offers a free 2 year warranty on all DVD players. Historically, they have experienced an average warranty cost of 3% of the sales price. Jonesy uses the perpetual inventory method. A. Record the sale of the 150 DVD players. B. Record the Warranty Expense Adjusting Entry at the end of 2014. C. During 2015, 10 of the DVD players are returned due to a severe malfunction and had to replaced with an entirely new unit out of inventory. Record this entry. D.What is the total warranty expense that would have been recorded for 2014? E. What is the total warranty liability at the end of 2014? F. What is the total warranty expense that would have been recorded for 2015? G. What is the total warranty liability at the end of 2015? Comment on the company's estimated warranty percentage. Is it sufficient? How would you change it?

Expert Solution

A) Sale of 150 dvd players

Particulars	Debit	Credit
Cash account (150*225)	33750
Sales revenue		33750

B ) Warranty expense adjusting entry

Particulars	Debit	Credit
Warranty expense a/c (33750*3%)	1012.5
Warranty liability a/c		1012.5

C) Replacement entry out of total warranty cost of 10 dvd players ( 10*175 = 1750) , 1012.5 will be adjusted against warranty liability a/c and the remaining will be recorded in current year as expense.

Particulars	Debit	Credit
warranty liability a/c	1012.5
Warranty expense a/c	737.5
Inventory a/c (10*175)		1750

D) Total warranty expense recorded is 3% of sales

= 33750*3% = 1012.5

E) Since no claim arises in 2014 , Warranty liab will be 1012.5

F) Excess of actual warranty over estimated warranty liab is recorded as expense

= 1750 - 1012.5 = 737.5

G) Warranty liab at the end of year will be zero.

Company's estimated warranty % is not sufficent because it is less than actual warranty expense. Hence it should be imcreased to 5 or 6%.

ekkarill92 answered 1 year ago

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