Alvarado Company sells a machine for $7,550 with a 12-month warranty agreement t
ID: 2466437 • Letter: A
Question
Alvarado Company sells a machine for $7,550 with a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the company sells 880 machines in 2014 (warranty expense is incurred half in 2014 and half in 2015). As a result of product testing, the company estimates that the warranty cost is $480 per machine ($220 parts and $260 labor). Use "Inventory" account to record the warranty expense.
Assuming that actual warranty costs are incurred exactly as estimated, what journal entries would be made relative to the following facts?
No.
Account Titles and Explanation
Debit
Credit
SHOW LIST OF ACCOUNTS
LINK TO TEXT
No.
Account Titles and Explanation
Debit
Credit
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Alvarado Company sells a machine for $7,550 with a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the company sells 880 machines in 2014 (warranty expense is incurred half in 2014 and half in 2015). As a result of product testing, the company estimates that the warranty cost is $480 per machine ($220 parts and $260 labor). Use "Inventory" account to record the warranty expense.
Assuming that actual warranty costs are incurred exactly as estimated, what journal entries would be made relative to the following facts?
Explanation / Answer
a)
A) No entry as sales is made on credit.
2) Inventory Debit 211200
cash credit 211200
3)No entry for estimating warranty expense
4)Inventory debit 211200
cash credit 211200
c) Cash basis -0
Accrual - 211200
No. Account Debit credit 1 Accounts receivable 7550 sales 7550 2 Estimated warranty liability 211200 Inventory (880/2 = 440 * 220) 96800 Payroll (440*260) 114400 3 Warranty expense /Inventory 422400 estimated warranty liability [880 * 480] 422400 4 Estimated warranty liability 211200 Inventory 96800 payroll 114400Related Questions
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