Question

Woodmier Lawn Products introduced a new line of commercial sprinklers in 2020 that carry a one-year warranty against manufacturer’s defects. Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the industry. Based on that experience, warranty costs were expected to approximate 2% of sales. Sales of the sprinklers in 2020 were $2,500,000. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product:

Accrued liability and expense
Warranty expense (2% × $2,500,000)	50,000
Warranty liability		50,000
Actual expenditures (summary entry)
Warranty liability	23,000
Cash (or salaries payable, parts and supplies, etc.)		23,000

  
In late 2021, the company's claims experience was evaluated and it was determined that claims were far more than expected—3% of sales rather than 2%.

Required:
1. Assuming sales of the sprinklers in 2021 were $3,600,000 and warranty expenditures in 2021 totaled $88,000, prepare any journal entries related to the warranty.
2. Assuming sales of the sprinklers were discontinued after 2020, prepare any journal entries in 2021 related to the warranty.

Answer 1