Question

John Co. sold a copier (that costs $5,500) for $11,000 cash with a two-year parts warranty to a customer on August 16 of Year 1. John expects warranty costs to be 3% of dollar sales. It records warranty expense with an adjusting entry on December 31. On January 5 of Year 2, the copier requires on-site repairs that are completed the same day. The repairs cost $122 for materials taken from the repair parts inventory. These are the only repairs required in Year 2 for this copier.

1a. How much warranty expense does the company report for this copier in Year 1?

1b. How much is the estimated warranty liability for this copier as of December 31 of Year 1?

1c. How much is the estimated warranty liability for this copier as of December 31 of Year 2?

1d. Prepare journal entries to record (a) the copier’s sale; (b) the adjustment to recognize the warranty expense on December 31 of Year 1; and (c) the repairs that occur on January 5 of Year 2.

Aug 16: Record the sale of a copier for $11,000 cash. Aug 16:  Record the cost of goods sold of $5,500. Dec 31: Record the estimated warranty expense at 3% of the sales. On Jan. 5 of year 2, the copier requires on site repairs that are completed the same day. the repairs cost $122 for materials taken from the repair parts inventory. Record the cost of the repair.

Date	General Journal	Debit	Credit
Aug 16
Aug 16
Dec 31
Jan 05

Answer 1

	1a
	Warranty expense	330	=11000*3%
	1b
	Estimated warranty liability	330
	1c
	Estimated warranty liability	208	=330-122
1d
Date	General Journal	Debit	Credit
Aug. 16	Cash	11,000
	Sales		11,000
Aug. 16	Cost of goods sold	5,500
	Merchandise inventory		5,500
Dec. 31	Warranty expense	330
	Estimated warranty liability		330
Jan 05	Estimated warranty liability	122
	Repair parts inventory		122