Alvarado Company sells a machine for $8,090 with a 12-month warranty agreement t
ID: 2498519 • Letter: A
Question
Alvarado Company sells a machine for $8,090 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 860 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 $580 per machine ($262 parts and $318 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?
Under application of the cash-basis method for:
Warranty costs incurred in 2015.
No.
Account Titles and Explanation
Debit
Credit
Show List of Accounts
Link to Text
(1) Sale of machinery in 2014. (2) Warranty costs incurred in 2014. (3) Warranty expense charged against 2014 revenues. (4)Warranty costs incurred in 2015.
No.
Account Titles and Explanation
Debit
Credit
(1) (2) (3) (4)Show List of Accounts
Link to Text
Explanation / Answer
a) Sale of machine Cash $6,957,400 Sales $6,957,400 860 machine sold for $8090 each b) Inventory $ 112,660 Labor Cost $ 136,740 Warrany Expense $ 249,400 c) Warranty Expense $ 249,400 Cash $ 249,400 Warranty expenses incurred during the year d) Inventory $ 112,660 Labor Cost $ 136,740 Warrany Expense $ 249,400 Warranty cost incurred in 2015
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.