Question

2.

Estimated Warranty Liability

Cook-Rite Co. sold $651,000 of equipment during January under a six-month warranty. The cost to repair defects under the warranty is estimated at 4% of the sales price. On August 15, a customer required a $274 part replacement, plus $101 of labor under the warranty.

Required:

(a) Provide the journal entry for the estimated warranty expense on January 31 for January sales.

Jan. 31	Accounts Payable
	Product Warranty Expense

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Contingent liability entries are needed when the amount can be reasonably estimated and the liability is probable. Recorded contingent liabilities follow the matching concept. Contingent liabilities are an accrued expense adjusting entry.

(b) Provide the journal entry for the August 15 warranty work. If an amount box does not require an entry, leave it blank.

Aug. 15

Answer 1

Solution:

a)

Date	Account title and explanation	Debit	Credit
Jan 31	Warranty expense (651,000 *4%)	$26,040
	Product warranty payable (liability)		$26,040
	(To record the estimate of warranty expense)

b)

Date	Account title and explanation	Debit	Credit
Aug 15	Product warranty payable (liability)	$375
	Supplies		$274
	Wages payable		$101
	(To record the warranty work)

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