Question

Excom manufactures high-end whole home electronic systems. The company provides a two-year warranty for all products sold. The company estimates that the warranty cost is $225 per unit sold and reported a liability for estimated warranty costs $10.8 million at the beginning of this year. During the current year, the company sold 60,000 units, costing $180 million, for a total of $243 million on account. It also paid warranty claims of $9,000,000 on current and prior year sales. 1. Prepare the (aggregate) journal entry to record the sale of the 60,000 units. 2. Prepare the (aggregate) journal entry to record the payment of warranty claims. 3. Prepare the adjusting journal entry associated with warranties. 4. What is the balance in the warranty liability account on the year-end balance sheet?

Answer 1

Working Notes:
	CALCULATION OF THE WARRANTY EXPENSES FOR THE YEAR
	Sales of the year	60,000	Units
	Estimated warranty Liability Per Unit	$                        225
	Estimated Warranty Liability of the year (60,000 X $ 225)	$          13,500,000
	Sales
SOLUTION: 1,2 & 3
Trnsaction	Journal Entries	Debit (Amt in Million $)	Credit (Amt in Million $)
1	Cash	$                  243.00
	Sales Revenue		$                     243.00
	(To Record the Sales Revenue of the year)
1	Cost of Goods Sold	$                  180.00
	Inventory		$                     180.00
	(To Record the cost of Goods Sold)
2	Estimated Warranty Payable	$                       9.00
	Parts Inventory		$                         9.00
	(To Record the consumption of warranty)
3	Warranty Expenses	$                     13.50
	Estimated Warranty Payable		$                       13.50
	(To Record the warranty Expenses of the period)
SOLUTION: 4
	Calculation of Balance in Warranty Payable Account
	Beginning Balance of Estimated Warranty =	$                     10.80	Million
	Add: Estimated Provission of the CY Sales	$                     13.50	Million
	Total	$                     24.30	Million
	Less: Actual Warranty Claims of the year	$                       9.00	Million
	Balance in Warranty Payable A/c	$                     15.30	Million
Answer = $ 15.30