Hitzu Co. sold a copier costing $4,500 with a two-year parts warranty to a custo

Question

Hitzu Co. sold a copier costing $4,500 with a two-year parts warranty to a customer on August 16, 2017, for $9,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2018, the copier requires on-site repairs that are completed the same day. The repairs cost $131 for materials taken from the repair parts inventory. These are the only repairs required in 2018 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 4% 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 2017 for this copier? Warranty expense 2. How much is the estimated warranty liability for this copier as of December 31, 2017? Estimated warranty liability 3. How much warranty expense does the company report in 2018 for this copier? Warranty expense 4. How much is the estimated warranty liability for this copier as of December 31, 2018? Estimated warranty liability

Explanation / Answer

11 1.How much warranty expenses does the company report in 2017 for this copier warranty expense 4% of dollar sales 4%* $9000 $360 2 2.How much is the estimated warranty liability for this copier as of dec 31 2017 $360 3 3.How much warranty expense does the company report in 2018 for this copier None the $131 for materials is debited to the warranty liability account and not expense 4 4.How much is the estimated warranty liability for this copieras of dec 31 2018 ($360-$131) $229 5 5.Prepare the journal entries to record a) the copiers sales b) the adjustment on dec 31 2017 to recognize the warranty expense and c)the repairs that occur in Nov 2018 Journal Entries Date Account Title Dr Amount Cr Amount 16-Aug-17 cash $9,000 To sales revenue $9,000 to record the sale of copier Cost of Goods Sold $4,500 To Inventory $4,500 31-Dec-17 Warranty Expense $360 To warranty Liability $360 to recognize the warranty expense 22-Nov-18 Warranty Liability $131 To Inventory -Repairs $131 to record the repairs

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