Question

Hitzu Co. sold a copier costing $5,500 with a two-year parts warranty to a customer on August 16, 2015, for $11,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2016, the copier requires on-site repairs that are completed the same day. The repairs cost $145 for materials taken from the Repair Parts Inventory. These are the only repairs required in 2016 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 3% of dollar sales. It records warranty expense with an adjusting entry at the end of each year.1) How much warranty expense does the company report in 2015 for this copier?2) How much is the estimated warranty liability for this copier as of December 31, 2015?3) How much warranty expense does the company report in 2016 for this copier?4) How much is the estimated warranty liability for this copier as of December 31, 2016?5) Prepare journal entries to record (a) the copier's sale; (b) the adjustment on December 31, 2015, to recognize the warranty expense; and (c) the repairs that occur in November 2016.

Answer 1

Answer:

           Details                                                        Amt $

        Copier sales value Aug 16.2015.                      11,000  

         Warranty Expense 3% of $ sales =                     330

1-       As the full sales recognized in 2015,    

          warranty expense of $330 will be recognized  

           in 2015.

2         Warranty Liability at 2015 end will be $330

 

3         Warranty Expense in 2016 will be nil.

4      Estimated warranty liability at 2016 end =  

            (330-145)=$185            

                       Accounting Entries

Date               Account Title                        Dr $             Cr $

Aug 16.2015.       Cash                                     11,000  

                           Sales Revenue                                    11,000

Dec 31.2015.     Warranty Expense                 330  

                            Warranty Liability                                330

Nov 22.2016.      Warranty Liability                   145  

                            Repair Parts Inventory                           145