Question

Splish Company sells a machine for $7,190 with a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the company sells 660 machines in 2017 (warranty expense is incurred half in 2017 and half in 2018). As a result of product testing, the company estimates that the warranty cost is $295 per machine ($124 parts and $171 labor). Use "Inventory" account to record the warranty expense.

Assuming that actual warranty costs are incurred exactly as estimated, what journal entries would be made relative to the following facts?

Part 1

Sale of machinery and warranty expense incurred in 2017. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit
(To record sale)
(To record warranty expense)

Part 2

Warranty accrual on December 31, 2017. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

Part 3

Warranty costs incurred in 2018. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

Part 4

What amount, if any, is disclosed in the balance sheet as a liability for future warranty costs as of December 31, 2017?

Warranty liability

$

Answer 1