On January 1, 2015, Sunland Company began a warranty program to stimulate sales.
ID: 2342807 • Letter: O
Question
On January 1, 2015, Sunland Company began a warranty program to stimulate sales. It is estimated that 5% of the units sold will be returned for repair at an estimated cost of $36 per unit. Sales and warranty figures for the three years ended December 31 are as follows: Sales (units) Sales price per unit Units returned for repair under warranty Actual warranty costs 2017 1,900 $125 105 $2,160 $%2,750 $3,390 2015 1,200 $130 75 2016 1,600 $120 90 Calculate the warranty expense for each year and warranty liability at the end of each year. Warranty Expense Warranty Liability 2015 2016 2017 Record the warranty transactions for each year. Credit Repair Parts Inventory for theExplanation / Answer
Warranty Expense= Unit sold * selling price * Estimated percentage of repairs
Warranty Liability created at the beginning on estimation- cost of units repaired during the period
Year
Warranty Expense
Warranty Liability
2015
7800 (1200*130*5%)
5100 (7800-75*36)
2016
9600 (1600*120*5%)
6360 (9600-90*36)
2017
11875 (1900*125*5%)
8095 (11875-105*36)
Accounting Entries
2015
Warranty Expense $7800
Estimated Warranty Liability $7800
Estimated Warranty Liability(75*36) $2700
Parts Inventory $2700
2016
Warranty Expense $9600
Estimated Warranty Liability $9600
Estimated Warranty Liability(90*36) $3240
Parts Inventory $3240
2017
Warranty Expense $11875
Estimated Warranty Liability $11875
Estimated Warranty Liability(105*36) $3780
Parts Inventory $3780
Year
Warranty Expense
Warranty Liability
2015
7800 (1200*130*5%)
5100 (7800-75*36)
2016
9600 (1600*120*5%)
6360 (9600-90*36)
2017
11875 (1900*125*5%)
8095 (11875-105*36)
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