Western Yard Equipment offers warranties on all their lawn mowers. They estimate

Question

Western Yard Equipment offers warranties on all their lawn mowers. They estimate warranty expense at 1.4% of sales. At the beginning of 2017, the estimated warranty payable account had a credit balance of $1,200. During the year, Western Yard Equipment had $485,000 of sales, and had to pay out $8,730 in warranty payments.

Prepare the required journal entries to record warranty expense and payments. Use December 31 for the journal entry date.

Date

Account /Explanation

Debit

Credit

What is the balance of the warranty liability at the end of 2017? Indicate whether the balance is a debit or a credit.

Date

Account /Explanation

Debit

Credit

Explanation / Answer

31-Dec Warranty expense 6790 =485000*1.4%         Estimate warranty payable 6790 31-Dec Estimate warranty payable 8730         Cash 8730 Balance of the warranty liability at the end of 2017=1200+6790-8730= $740 Debit balance

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