Question

Waterway Factory provides a 2-year warranty with one of its products which was first sold in 2020. Waterway sold $1,022,800 of products subject to the warranty. Waterway expects $119,130 of warranty costs over the next 2 years. In that year, Waterway spent $63,630 servicing warranty claims. Prepare Waterway’s journal entry to record the sales (ignore cost of goods sold) and the December 31 adjusting entry, assuming the expenditures are inventory costs.

Answer 1

Answer -

During 2020
accounts receivable   $1,022,800 debit
   sales revenues                       $1,022,800 credit

warranty expense      $63,630 debit
             Inventory                       $63,630 credit

Dec 31 adjusting entry

warrant expense     $55,500 debit
        warrant liability              $55,500 credit