FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Woodmier Lawn Products introduced a new line of commercial sprinklers in 2020 that carry a one-year warranty against manufacturer’s defects. Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the industry. Based on that experience, warranty costs were expected to approximate 2% of sales. Sales of the sprinklers in 2020 were $2,500,000. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product:
| Accrued liability and expense | ||
| Warranty expense (2% × $2,500,000) | 50,000 | |
| Warranty liability | 50,000 | |
| Actual expenditures (summary entry) | ||
| Warranty liability | 23,000 | |
| Cash (or salaries payable, parts and supplies, etc.) | 23,000 | |
In late 2021, the company's claims experience was evaluated and it was determined that claims were far more than expected—3% of sales rather than 2%.
Required:
1. Assuming sales of the sprinklers in 2021 were $3,600,000 and warranty expenditures in 2021 totaled $88,000, prepare any
2. Assuming sales of the sprinklers were discontinued after 2020, prepare any journal entries in 2021 related to the warranty.
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