On March 17, Sale Inc. sells 1,000 cell phones for $291, 000. The company offers

Question

On March 17, Sale Inc. sells 1,000 cell phones for $291, 000. The company offers a warranty with the cell phones and estimates that 1% of the selling price will go to pay for warranty repairs. What journal entry should the company make on March 17 to estimate the warranty liability associated with the cell phones sold? What effect does this entry have on the accounting equation? On April 4, one of the cell phones is brought in for a warranty repair that requires a $60 replacement. What journal entry should the company make on April 4 to record the warranty repair? What effect does this entry have on the accounting equation?

Explanation / Answer

Asset -No effect

Liability -Increase

Equity -decrease

2) April 4      Warranty liability      debit    60

                    cash                        credit   60

[reapirs made under warranty ]

Asset -decrease

Liability -decrease

equity -no change

march 17 warranty expense 2910 Warranty liability 2910 [being warranty expense estimated (291000*.01)

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