Hitzu Co. sold a copier costing $6,500 with a two-year parts warranty to a custo

Question

Hitzu Co. sold a copier costing $6,500 with a two-year parts warranty to a customer on August 16, 2017, for $13,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2018, the copier requires on-site repairs that are completed the same day. The repairs cost $133 for materials taken from the repair parts inventory. These are the only repairs required in 2018 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 5% of dollar sales. lt records warranty expense with an adjusting entry at the end of each year. 1. How much warranty expense does the company report in 2017 for this copier? Varranty expense 2. How much is the estimated warranty liability for this copier as of December 31, 2017? ted warranty liability 3. How much warranty expense does the company report in 2018 for this copier? Warranty expense 4. How much is the estimated warranty liability for this copier as of December 31, 2018? Estimated warranty liability 5. Prepare journal entries to record (a) the copier's sale; (b) the adjustment on December 31, 2017, to recognize the warranty expense; and (c) the repairs that occur in November 2018.

Explanation / Answer

1.How much warranty expense does the company report in 20117 for this copier ?

Warranty Expenses = $650

($13,000 x 5% = $650)

2. How much is the estimated warranty liability for this copier as of December 31, 2017 ?

Estimated warranty liability = $650

3. How much warranty expense does the company report in 2018 for this copier?

Warranty Expense = 0 (Zero)

4. How much is the estimated warranty liability for this copier as of December 31, 2018?

Estimated warranty liability = $517

($650 - $133 = $517 )

5.Journal Entries

Aug. 16, 2017

Dr         Cash $13,000

Cr          Sales                                             $13,000

Aug. 16, 2017     

Dr         Cost of goods sold               $6,500       

Cr          Merchandise inventory $6,500

Dec 31, 2017

Dr         Warranty expense                $650

Cr Estimated warranty liability                   $650

Nov. 22, 2018

Dr         Estimated warranty liability         $133

Cr Repair parts inventory                            $133

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