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Prepare the journal entry to estimate the warranty expense

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Question -Duane Herman sells exercise machines for home use. The machines carry a 4-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 $45 for labour and $75 for parts per unit. During 2018, 2,500 exercise machines 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. The opening balance in the Warranty Liability account is zero.

REQUIRED -

a) Prepare the journal entry to estimate the warranty expense and warranty liabilities regarding the units sold in 2018. Assume this adjustment is made at year-end, December 31.

b) Record the replacement of the units returned in 2018 (again use the date December 31).

c) Calculate the balance in the Estimated Warranty Liability account as at December 31, 2018.

Reference no: EM132497456

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