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Exercise 20-14 (Algo) Warranty expense [LO20-4]
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 3% of sales. Sales of the sprinklers in 2020 were $3,300,000. 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 (3% × $3,300,000) | 99,000 | |
| Warranty liability | 99,000 | |
| Actual expenditures (summary entry) | ||
| Warranty liability | 45,540 | |
| Cash (or salaries payable, parts and supplies, etc.) | 45,540 | |
In late 2021, the company's claims experience was evaluated and it was determined that claims were far more than expected—4% of sales rather than 3%.
Required:
1. Assuming sales of the sprinklers in 2021 were $4,400,000 and warranty expenditures in 2021 totaled $112,000, 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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