Chapter 11, Problem 4BP

1.

To determine

Prepare journal entries to record these transactions and adjustments of Company L.

Explanation of Solution

Warranty expense: Warranty expenses are those costs that a business expects to or has already incurred for the repair or replacement of its goods that it has sold.

Prepare journal entries to record these transactions and adjustments of Company L.

Date	Account title and explanation	Debit ($)	Credit ($)
November 16	Cash $\left(50\text{ grinders}\times \$50\right)$	2,500
	Sales		2,500
	(To record the sale of coffee grinders for cash.)
November 16	Cost of Goods Sold $\left(50\text{ grinders}\times \$24\right)$	1,200
	Merchandise Inventory		1,200
	(To Record the cost of goods sold on November 16)
November 30	Warranty Expense  $\left(\$2,500\times 10\%\right)$	250
	Estimated Warranty Liability		250
	(To record the coffee grinder warranty expense and the liability at 10% of selling price)
December 12	Estimated Warranty Liability $\left(6\text{ grinders}\times \$24\right)$	144
	Merchandise Inventory		144
	(To record the cost of warranty replacements)
December 18	Cash $\left(200\text{ grinders}\times \$50\right)$	10,000
	Sales		10,000
	(To record the sale of coffee grinders for cash)
December 18	Cost of Goods Sold $\left(200\text{ grinders}\times \$24\right)$	4,800
	Merchandise Inventory		4,800
	(To record the cost of goods sold on December 18)
December 28	Estimated Warranty Liability $\left(\text{17 grinders}\times \$24\right)$	408
	Merchandise Inventory		408
	(To record cost of coffee grinder returned under warranty replacements)
December 31	Warranty Expense $\left(\$10,000\times 10\%\right)$	1,000
	Estimated Warranty Liability		1,000
	(To record the coffee grinder warranty expense and the liability at 10% of selling price)
January 07	Cash $\left(\text{40 grinders}\times \$50\right)$	2,000
	Sales		2,000
	(To record the sale of coffee grinders for cash)
January 07	Cost of Goods Sold $\left(\text{40 grinders}\times \$24\right)$	960
	Merchandise Inventory		960
	( To record the cost of goods sold on January 07 )
January 21	Estimated Warranty Liability  $\left(36\text{ grinders}\times \$24\right)$	864
	Merchandise Inventory		864
	(To record cost of coffee grinder warranty replacements.)
January 31	Warranty Expense	200
	Estimated Warranty Liability		200
	(To record the coffee grinder warranty expense and the liability at 10% of selling price)

Table (1)

2.

To determine

Determine the warranty expense that would be reported for November and for December.

Explanation of Solution

Warranty expense: Warranty expenses are those costs that a business expects to or has already incurred for the repair or replacement of its goods that it has sold.

Compute the warranty expense that would be reported for November and for December.

Warranty expense for November and December
Particulars	Sales	Percent	Warranty Expense
November	$2,500	10%	$250
December	$10,000	10%	$1,000
Total	$12,500		$1,250

Table (2)

The warranty expense for November and December is $250 and $1,000 respectively.

3.

To determine

Compute the warranty expense that would be reported for January.

Explanation of Solution

Warranty expense: Warranty expenses are those costs that a business expects to or has already incurred for the repair or replacement of its goods that it has sold.

Determine the warranty expense for January.

Warranty expense for January
Particulars	Amount
Sales in January	$2,000
Warranty percent	10%
Warranty expense	$200

Table (3)

The warranty expense for January is $200.

4.

To determine

Compute the balance of estimated warranty liability account as of December 31.

Explanation of Solution

Estimated liability: Estimated liability is an amount of debt or obligation which is valued at a later date, the amount of debt to be incurred is uncertain, but they are capable of being reasonably estimated.

Determine the balance of estimated warranty liability account as of December 31.

Balance of estimated liability as of December 31
Particulars	Amount
Warranty expense for November	$250
Warranty expense for December	$1,000
Less: Cost of replacing items in December $\left(23\text{ grinders}\times \$24\right)$	($552)
Estimated Warranty Liability balance as of December	$698

Table (3)

The estimated warranty liability balance as of December is $698.

5.

To determine

Compute the balance of estimated warranty liability account as of January 31.

Explanation of Solution

Estimated liability: Estimated liability is an amount of debt or obligation which is valued at a later date, the amount of debt to be incurred is uncertain, but they are capable of being reasonably estimated.

Determine the balance of estimated warranty liability account as of January 31.

Balance of estimated liability as of January 31
Particulars	Amount
Beginning balance	$698
Warranty expense for January	$200
Less: Cost of replacing items in January $\left(36\text{ grinders}\times \$24\right)$	($864)
Estimated Warranty Liability balance as of January 31	$34

Table (3)

The estimated warranty liability balance as of January 31 is $34.