21E - Horngren'S Financial And Managerial Accounting

Question

Accounting for warranty expense and warranty payable 

The accounting records of Sculpted Ceramics included the following at January 1, 2018:

Estimated Warranty Payable
	5,000 Beg. Bal

 

In the past, Sculpted’s warranty expense has been 9% of sales. During 2018, Sculpted made sales of \(113,000 and paid \)7,000 to satisfy warranty claims. Requirements 

1. Journalize Sculpted’s warranty expense and warranty payments during 2018.   Explanations are not required. 
2. What balance of Estimated Warranty Payable will Sculpted report on its balance sheet at December 31, 2018?

Step-by-Step Solution

Answer

1. Warranty expense = $10,170
2. The estimated warranty payable is $8,170.

Meaning of Balance sheet

The balance sheet is a report that lists all of an entity's assets, liabilities, and equity. Lenders, investors, and creditors commonly use it to evaluate a company's liquidity. A balance sheet is one of the papers that make up a company's financial statements.

Preparing Journal entry

Date	Particulars	Debit ($)	Credit ($)
2018	Warranty expense	10,170
	Estimated warranty payable		10,170

 

Working note:

$\begin{array}{c}\text{Waranty\hspace{0.33em}expense}=\text{Sales}\times \text{Percent}\\ =\$113,000\times 9\%\\ =\$10,170\end{array}$

Report the balance on the balance sheet

Estimated warranty payable
Detail	Debit ($)	Detail	Credits ($)
Payments	7,000	Balance (opening)	5,000
		Accrual	10,170
Total	7,000	Total	15,170
		Balance (closing)	8,170

 

Therefore, the balance of the estimated warranty payable report on the balance sheet on December 31, 2018, is $8,170.