Warranty Costs Brigham Company sells an electric timer that carries a 60-day unc

Question

Warranty Costs Brigham Company sells an electric timer that carries a 60-day unconditional war LO1 ranty against product failure. Based on a reliable statistical analysis, Brigham knows that between er 10 Accounting for Liabilities the sale and the end of the product warranty period, four percent of the units sold will require repair at an average cost of S40 per unit. The following data reflect Brigham's recent experience October November Dec. 31 Total 115,000 1,080 410 December 34,000 45,000 Known product failures from sales in: 210 360 410 320 550 230 590 Calculate, and prepare a journal entry to record, the estimated liability for product warranties at De cember 31.Assume that warranty costs of known failures have already been reflected in the records

Explanation / Answer

Estimated no. of units sold that will require repair = Units sold x 4% = 115000 x 4% = 4600

Cost per unit = $40

Estimated liability for product warranties = 4600 x $40 = $184000

Journal

Account Name Debit Credit Warranty expense $184000 Estimated Warranty Liability $184000 (To record estimated liability for product warranties)

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