59-3. (Learning Objective 1: Account for warranty expense and estimated warranty

Question

59-3. (Learning Objective 1: Account for warranty expense and estimated warranty payable) Tires USA guarantees tires against defects for five years or 60,000 miles, whichever comes first. Suppose Tires USA can expect warranty costs during the five-year period to add up to 5% of sales. Assume that a Tires USA dealer in Atlanta, Georgia, made sales of $674,000 during 2014·Tires USA received cash for 35% of the sales and took notes receivable for the remainder. Payments to satisfy customer warranty claims totaled $19,400 during 2014. 1. Record the sales, warranty expense, and warranty payments for Tires U 2. Post to the Estimated Warranty Payable T-account. The beginning balance was $14,000 At the end of 2014, how much in estimated warranty payable does Tires USA owe to its customers

Explanation / Answer

1. Journal

2. Estimated warranty payable A/c

At the end of 2014, Tires USA owes to its customers $28300 in estimated warranty payable.

No. Account Name Debit Credit 1. Cash $235900 Notes receivable 438100 Sales revenue $674000 (To record sales revenue) 2. Warranty expense ($674000 x 5%) 33700 Estimated warranty payable 33700 (To record warranty expense) 3. Estimated warranty payable 19400 Cash 19400 (To record payment for customer warranty claims)

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