Asked by Cassie Birth on May 20, 2024
Verified
Sweet Baking Company sells professional grade mixers for home use. The machines carry a 2-year warranty. Past experience indicates that 6% of the units sold will be returned during the warranty period for repairs. The average cost of repairs under warranty is $70 for labor and $90 for parts per unit. During 2017 2500 mixers were sold at an average price of $800. During the year 60 of the machines that were sold were repaired at the average price per unit.
Instructions
(a) Prepare the journal entry to record the repairs made under warranty.
(b) Prepare the journal entry to record the warranty expense for the year.
Warranty Expense
Costs associated with the repair or replacement of defective products during the warranty period.
Professional Grade Mixers
High-quality mixing machines designed for commercial or industrial use, often found in kitchens and labs.
Warranty Period
The duration during which a manufacturer or vendor is obligated to repair or replace a product if it fails to meet specified criteria.
- Grasp the concept and recording implications of warranty expenses and associated journal entries.
Verified Answer
PJ
Punnapat JirasarunpatMay 21, 2024
Final Answer :
(a)
Labor on repaired units: $70×60=$4,200 Parts on repaired units: $90×60=$5,400 Warranty Liability 9,600 Repair Parts 5,400 Salaries and Wages Payable 4,200(To record honoring of 60 warranty contracts) \begin{array}{lrr} \text {Labor on repaired units: \( \$ 70 \times 60=\$ 4,200 \) } &\\ \text { Parts on repaired units: \( \$ 90 \times 60=\$ 5,400 \) } &\\\\ \text { Warranty Liability } &9,600\\ \text { Repair Parts } &&5,400\\ \text { Salaries and Wages Payable } &&4,200\\ \text {(To record honoring of 60 warranty contracts) } &\\\end{array}Labor on repaired units: $70×60=$4,200 Parts on repaired units: $90×60=$5,400 Warranty Liability Repair Parts Salaries and Wages Payable (To record honoring of 60 warranty contracts) 9,6005,4004,200
(b)
2,500 units ×6%=150 units 150 units ×$160=$24,000 Warranty Expense 24,000 Warranty Liability 24,000\begin{array}{llr} \text {2,500 units \( \times 6 \%=150 \) units } &\\ \text {150 units \( \times \$ 160=\$ 24,000 \) } &\\\\ \text { Warranty Expense } &24,000\\ \text { Warranty Liability } &&24,000\\\end{array}2,500 units ×6%=150 units 150 units ×$160=$24,000 Warranty Expense Warranty Liability 24,00024,000
(To record estimated cost of honoring 150 warranty contracts)
The balance in Warranty Liability at year end is $14400 ($24000 - $9600) which equals the expected cost of honoring the 90 remaining expected warranty contracts.
Labor on repaired units: $70×60=$4,200 Parts on repaired units: $90×60=$5,400 Warranty Liability 9,600 Repair Parts 5,400 Salaries and Wages Payable 4,200(To record honoring of 60 warranty contracts) \begin{array}{lrr} \text {Labor on repaired units: \( \$ 70 \times 60=\$ 4,200 \) } &\\ \text { Parts on repaired units: \( \$ 90 \times 60=\$ 5,400 \) } &\\\\ \text { Warranty Liability } &9,600\\ \text { Repair Parts } &&5,400\\ \text { Salaries and Wages Payable } &&4,200\\ \text {(To record honoring of 60 warranty contracts) } &\\\end{array}Labor on repaired units: $70×60=$4,200 Parts on repaired units: $90×60=$5,400 Warranty Liability Repair Parts Salaries and Wages Payable (To record honoring of 60 warranty contracts) 9,6005,4004,200
(b)
2,500 units ×6%=150 units 150 units ×$160=$24,000 Warranty Expense 24,000 Warranty Liability 24,000\begin{array}{llr} \text {2,500 units \( \times 6 \%=150 \) units } &\\ \text {150 units \( \times \$ 160=\$ 24,000 \) } &\\\\ \text { Warranty Expense } &24,000\\ \text { Warranty Liability } &&24,000\\\end{array}2,500 units ×6%=150 units 150 units ×$160=$24,000 Warranty Expense Warranty Liability 24,00024,000
(To record estimated cost of honoring 150 warranty contracts)
The balance in Warranty Liability at year end is $14400 ($24000 - $9600) which equals the expected cost of honoring the 90 remaining expected warranty contracts.
Learning Objectives
- Grasp the concept and recording implications of warranty expenses and associated journal entries.