Question

A company sells its product subject to a warranty that covers the cost of parts for repairs during the six months after the date of sale. Warranty costs are estimated to be 5% of sales. During the month of July, the company preformed warranty work and used $11,000 of parts to preform the warranty work. Sales for July were $450,000

1. Record the warranty expense for the month of July.

2. Record the costs of the warranty completed in July.

3. If the estimated warranty liability account had a credit balance of $10,000 on June 30, what is the account balance at July 30?

Answer 1

1	Warranty expense	22500	(450000*5%)
	Estimated Warranty liability		22500
2	Estimated Warranty liability	11000
	Cash		11000
3	Estimated Warranty liability
	Beginning	10000
Add	Warranty Expense	22500
		32500
Less	liability used	11000
	Ending	21500