Question

During 20X0, the Lynch Appliance Company had cash sales of $750,000. The company estimates the cost of servicing products under warranty will average 3% of sales.

1. Prepare journal entries for sales revenue and the related warranty expenses for 20X0. Assume all sales are for cash.

2. The liability for warranties was $11,600 at the beginning of 20X0. Expenditure (all in cash) to satisfy warranty claims during 20X0 was $20,600 of which $4,100 was for products sold in 20X0. Prepare the journal entry for the warranty expenditures.

3. Compute the balance in the Liability for Warranties account at the end of 20X0.

Answer 1