Question

Appliance City sells appliances. With each sale comes a warranty against defective parts. The company estimates...

Appliance City sells appliances. With each sale comes a warranty against defective parts. The company estimates that 5 percent of the appliances sold will require replacement parts at an average cost of $22 each. During 2004, 2,300 appliances are sold. During 2004, the company has spent $1,400 honoring the warranties from 2004 sales.

How much should be the debit to the Warranty Expense account for 2004 sales?

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Answer #1
Warranty Expense Account:
Warranty Expense Account Dr.          2,530 2300*5%*22
To Accurred Warranty Liability Account                                  2,530 2530
(Being Provision created)
Accurred Warranty Liability Account Dr.          1,400
To Cash Account                                  1,400
(Being Warranties Honored)

Answer is 2530/-

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