On November 10, 2015, Brown Co. began operations by purchasing TV’S for resale.

Question

On November 10, 2015, Brown Co. began operations by purchasing TV’S for resale. Lee uses the perpetual inventory method. The TV’s have a 60-day warranty that requires the company to replace any nonworking TV’S. When a TV is returned, the company discards it and mails a new one from Merchandise Inventory to the customer. The company’s cost per new TV’s is $24 and its retail selling price is $50 in both 2015 and 2016. The manufacturer has advised the company to expect warranty costs to equal 10% of dollar sales. The following transactions and events occurred.

2015

Nov. 16 Sold 50 TV’s for $2,500 cash.

30 Recognized warranty expense related to November sales with an adjusting entry.

Dec. 12 Replaced six Tv’s that were returned under the warranty.

18 Sold 200 TV’s for $10,000 cash.

28 Replaced 17 TV’s that were returned under the warranty.

31 Recognized warranty expense related to December sales with an adjusting entry.

2016

Jan. 7 Sold 40 TV’s for $2,000 cash.

21 Replaced 36 TV’S that were returned under the warranty.

31 Recognized warranty expense related to January sales with an adjusting entry.

Required

1. Prepare journal entries to record these transactions and adjustments for 2015 and 2016.

2. How much warranty expense is reported for November 2015 and for December 2015?

3. How much warranty expense is reported for January 2016?

4. What is the balance of the Estimated Warranty Liability account as of December 31, 2015?

5. What is the balance of the Estimated Warranty Liability account as of January 31, 2016?

Explanation / Answer

1.

Journal entries:

2.

3.

4.

Note: Dear student, as per Chegg guidelines, the four sub parts are answered, please remaining sub part seperately.

Date Accounts and explanations Debit ($) Credit ($) Nov. 16, 2015 Cash 2,500    Sales revenue 2,500 (To record the cash sales) Nov. 30, 2015 Warranty expenses ($2,500*10/100) 250    Provision for warranty expenses 250 (To record the warranty expenses for November 2015) Dec. 12, 2015 Provision for warranty expenses (6 TVs * $24 per TV) 144    Mercahndise inventory 144 (To record the replacement of TVs under warranty) Dec. 18, 2015 Cash 10,000    Sales revenue 10,000 (To record the cash sales) Dec. 28, 2015 Provision for warranty expenses (17 TVs * $24 per TV) 408    Mercahndise inventory 408 (To record the replacement of TVs under warranty) Dec. 31, 2015 Warranty expenses ($10,000*10/100) 1,000    Provision for warranty expenses 1,000 (To record the warranty expenses for November 2015) Jan. 7, 2016 Cash 2,000    Sales revenue 2,000 (To record the cash sales) Jan. 21, 2016 Provision for warranty expenses (36 TVs * $24 per TV) 864    Mercahndise inventory 864 (To record the replacement of TVs under warranty) Jan. 31, 2016 Warranty expenses ($2,000*10/100) 200    Provision for warranty expenses 200 (To record the warranty expenses for November 2015)

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