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Chapter 11: Q3TI (page 594)

O鈥機onner guarantees its vacuums for four years. Prior experience indicates that warranty costs will be approximately 6%ofsales. Assume that O鈥機onner made sales totaling $200,000 during 2018. Record the warranty expense for the year.

Short Answer

Expert verified

Answer :

Date

Account

Debit

Credit

2018

Warranty Expense

$12,000



Warranty Payable


$12,000


To record the warranty expense for 2018



Step by step solution

01

Step-by-step solution

Step 1: Calculation for warranty costs

WarrantyCost=Percentageofsales脳Sales=6%脳$200,000=$12,000

02

Explanation about warranty costs.

The warranty costs are matched to the sales to apply the matching concept requiring expenses are matched to their associated revenues. The expense is recognized by creating a warranty account that is drawn upon when repairs are performed.

03

Explanation of the journal entry

Warranty expense is debited and warranty payable is credited by an amount of $12,000 in order to record the warranty expense for 2018.

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Most popular questions from this chapter

Runner guarantees its snowmobiles for three years. Company experience indicates that warranty costs will be approximately 5% of sales. Assume that the Trail Runner dealer in Colorado Springs made sales totaling \(600,000 during 2018. The company received cash for 20% of the sales and notes receivable forthe remainder. Warranty payments totaled \)10,000 during 2018.

Requirements

Record the sales, warranty expense, and warranty payments for the company.

Ignore cost of goods sold.

What are the three main characteristics of liabilities?

The following transactions of Philadelphia Pharmacies occurred during 2017 and 2018:

2017

Jan. 9 Purchased computer equipment at a cost of \(7,000, signing a six-month, 8% note payable for that amount.

29 Recorded the week鈥檚 sales of \)68,000, three-fourths on credit and one-fourth for cash. Sales amounts are subject to a 6% state sales tax. Ignore cost of goods sold.

Feb. 5 Sent the last week鈥檚 sales tax to the state.

Jul. 9 Paid the six-month, 8% note, plus interest, at maturity.

Aug. 31 Purchased merchandise inventory for \(3,000, signing a six-month, 10% note payable. The company uses the perpetual inventory system.

Dec. 31 Accrued warranty expense, which is estimated at 2% of sales of \)609,000.

31 Accrued interest on all outstanding notes payable.

2018

Feb. 28 Paid the six-month 10% note, plus interest, at maturity.

Journalize the transactions in Plymouth鈥檚 general journal. Explanations are not required.

How might a business use a payroll register?

Match the likelihood of a future event with the reporting of the contingency. An answer may be selected more than once.

Likelihood of Future Event

How to Report the Contingency

  1. Remote
  1. Do not disclose.
  2. Record an expense and a liability based on estimated amounts.
  3. Describe the situation in a note to the financial statements.
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