Hitzu Co. sold a copier costing $4,500 with a two-year parts warranty to a custo

Question

Hitzu Co. sold a copier costing $4,500 with a two-year parts warranty to a customer on August 16, 2015, for $9,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2016, the copier requires on-site repairs that are completed the same day. The repairs cost $99 for materials taken from the Repair Parts Inventory. These are the only repairs required in 2016 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 6% of dollar sales. It records warranty expense with an adjusting entry at the end of each year. 1. How much warranty expense does the company report in 2015 for this copier? arranty expense 2. How much is the estimated warranty liability for this copier as of December 31, 2015? Estimated warranty liability 3. How much warranty expense does the company report in 2016 for this copier? Warranty expense 4. How much is the estimated warranty liability for this copier as of December 31, 2016? Estimated warranty liability

Explanation / Answer

Warranty expense in 2015 =6 % of sales =6/100*9000=540

Warranty liability is same as warranty expense.

Cash A/C   Dr                            9000

Cost of goods sold A/C Dr        4500

    To Sales A/C                          9000

     To Inventory A/C                   4500

    To Accrued Warranty liability A/C         540

(b)
22-Nov-16

Warranty liability A/C Dr              99

   To Inventory repair parts          99

Warranty liability and expense are recorded at the time of sale. Any warranty claims are charged against the Warranty liability account.

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