Tires USA guarantees tires against defects for five years or 60,000 miles, which

Question

Tires USA guarantees tires against defects for five years or 60,000 miles, whichever comes Suppose Tires USA can expect warranty costs during the five-year period to add up to of sales. Assume that a Tires USA dealer in Atlanta, Georgia, made sales of $674,000 during 2014. Tires USA received cash for 35% of the sales and took notes receivable for the remainder. Payments to satisfy customer warranty claims totaled $19,400 during 2014. Record the sales, warranty expense, and warranty payments for Tires USA. Post to the Estimated Warranty Payable T-account. The beginning balance was 14,00 At the end of 2014, how much in estimated warranty payable does Tires USA owe to its customers?

Explanation / Answer

1 Debit Credit To record Cash & credit sales) Cash(35% *674000) 235900 Notes Receivables(674000-235900) 438100 Sales 674000 Warranty expense(5% of 674000) 33700 Warranty Payable 33700 (Warranty expenses expected on the sales made) Warranty liability 19400 Cash 19400 (Cash payments against customer warranty claims Warranty Payable Account Opening Balance 14000 Warranty expenses expected on curent sales 33700 Warranty claims settled in cash 19400 Closing Balance 28300 47700 47700 Warranty Payable Amount owed to customers @ end of 2014 28300

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