Financial Accounting Fundamentals
Financial Accounting Fundamentals
6th Edition
ISBN: 9781260005042
Author: Wild
Publisher: MCG
Question
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Chapter 9, Problem 4AP

1.

To determine

Prepare journal entries to record these transactions and adjustments of Company L for 2016 and 2017.

1.

Expert Solution
Check Mark

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 for 2016 and 2017.

DateAccount title and explanationPost ref.Debit ($)Credit ($)
2016    
November 11Cash (105 razors×$75) 7,875 
       Sales  7,875
  (To record the sale of razors for cash.)   
     
November 11Cost of Goods Sold (105 razors×$20) 2,100 
       Merchandise Inventory  2,100
 (To Record the cost of goods sold on November 11)   
     
November 30Warranty Expense  ($7,875×8%) 630 
       Estimated Warranty Liability  630
 (To record the warranty expense of the razors and the liability at 8%of selling price)   
     
December 09Estimated Warranty Liability (15 razors×$20) 300 
       Merchandise Inventory  300
 (To record the cost of warranty replacements)   
     
December 16Cash (220 razors×$75) 16,500 
       Sales  16,500
  (To record the sale of razors for cash)   
     
December 16Cost of Goods Sold (220 razors×$20) 4,400 
       Merchandise Inventory  4,400
 (To record the cost of goods sold on December 16)   
     
December 29Estimated Warranty Liability (30 razors×$20) 600 
       Merchandise Inventory  600
 (To record cost of razors returned under warranty replacements)   
     
December 31Warranty Expense ($16,500×8%) 1,320 
       Estimated Warranty Liability  1,320
 (To record the warranty expense of razor and the liability at 8%of selling price)   
     
2017    
January 05Cash (150 razors×$75) 11,250 
       Sales  11,250
  (To record the sale of razors for cash)   
     
January 05Cost of Goods Sold (150 razors×$20) 3,000 
       Merchandise Inventory  3,000
 (To record the cost of goods sold on January 05 )   
     
January 17Estimated Warranty Liability  (50 razors×$20) 1,000 
       Merchandise Inventory  1,000
 (To record cost of razors warranty replacements.)   
     
January 31Warranty Expense 900 
       Estimated Warranty Liability  900
 (To record the warranty expense of razors and the liability at 8%of selling price)   

Table (1)

2.

To determine

Determine the warranty expense that would be reported for November 2016 and for December 2016.

2.

Expert Solution
Check Mark

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 2016 and for December 2016.

Warranty expense for November 2016 and December 2016
ParticularsSalesPercentWarranty Expense
November$7,8758%$630
December$16,5008%$1,320
Total$24,375 $1,950

Table (2)

The warranty expense for November 2016 and December 2016 is $630 and $1,320 respectively.

3.

To determine

Compute the warranty expense that would be reported for January 2017.

3.

Expert Solution
Check Mark

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 2017.

Warranty expense for November 2017
ParticularsAmount
Sales in January$11,250
Warranty percent  8%
Warranty expense$900

Table (3)

The warranty expense for January 2017 is $900.

4.

To determine

Compute the balance of estimated warranty liability account as of December 31, 2016.

4.

Expert Solution
Check Mark

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, 2016.

Balance of estimated liability as of December 31, 2016
ParticularsAmount
Warranty expense for November$630
Warranty expense for December$1,320
Less: Cost of replacing items in December (45 razors ×$20)($900)
Estimated Warranty Liability balance as of December 2016$1,050

Table (3)

The estimated warranty liability balance as of December 2016 is $1,050.

5.

To determine

Compute the balance of estimated warranty liability account as of January 31, 2017.

5.

Expert Solution
Check Mark

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, 2017.

Balance of estimated liability as of January 31, 2017
ParticularsAmount
Beginning balance$1,050
Warranty expense for January$900
Less: Cost of replacing items in January (50 razors×$20)($1,000)
Estimated Warranty Liability balance as of December 2016$950

Table (3)

The estimated warranty liability balance as of January 31, 2017 is $950.

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