Thank you Streep Factory provides a 2-year warranty with one of its products whi

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Streep Factory provides a 2-year warranty with one of its products which was first sold in 2014. In that year, Streep spent $81,600 servicing warranty claims. At year-end, Streep estimates that an additional $406,700 will be spent In the future to service warranty claims related to 2014 sales. Prepare Streep's journal entry to record the $81,600 expenditure, and the December 31 adjusting entry, assuming the expenditures are inventory costs. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Explanation / Answer

Journal Entries:

1. Expenditure incurred in current year:

Warranty Expense A/c Dr $81,600

To Inventory A/c $81,600

2. Adjusting Entry for Future Warranty Claims relating to 2014 Sales

Warranty Expense A/c Dr   $406,700

To Estimated Warranty Liability A/c $406,700

(Note: Warranty Expenditure is treated as Inventory Costs as given in the problem)

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