Question

Miley Equipment Company sells computers for $1,500 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2019, the company sold 900 computers. Based on past experience, the company has estimated the total 2-year warranty costs as $100 per computer sold. In 2020, Miley incurred actual warranty costs relative to 2019 computer sales of $30,000. Prepare the entries to reflect the above warranty transactions (accrual method) for 2019 and 2020.

Answer 1

Date	General journal	Debit	Credit
2019	Accounts Receivable ( 900 x $ 1,500 )	$ 1,350,000
	Sales Revenue		$ 1,350,000
	(To record the sale of Computers )
2019	Warranty Expense ( 900 x $ 100 )	$ 90,000
	Warranty Liability		$ 90,000
	(To record liability against warranty Costs )
2020	Warranty Liability	$ 30,000
	Inventory (or) Wages payabe		$ 30,000