33PGB - Horngren'S Financial And Managerial Accounting

Question

The following transactions of Belkin Howe occurred during 2018:

 

Apr. 30  Howe is party to a patent infringement lawsuit of \(230,000. Howe’s attorney is certain it is remote that Howe will lose this lawsuit.

Jun. 30  Estimated warranty expense at 3% of sales of \)390,000.

Jul. 28   Warranty claims paid in the amount of \(6,300.

Sep. 30  Howe is party to a lawsuit for copyright violation of \)90,000. Howe’s attorney advises that it is probable Howe will lose this lawsuit. The attorney estimates the loss at \(90,000.

Dec. 31 Howe estimated warranty expense on sales for the second half of the year of \)520,000 at 3%.

 

Requirements

1. Journalize required transactions, if any, in Howe’s general journal. Explanations are not required.

 

2. What is the balance in Estimated Warranty Payable assuming a beginning balance of $0?

Step-by-Step Solution

Answer

Warranty Payable balance at Dec 31: $21,000

Journal Entries

Date	Particular	Debit	Credit
June. 30	Warranty Expense (3% of $350,000)	$ 11,700
	Warranty Payable		$  11,700
	Being warranty accrued recorded
Jul. 28	Warranty Payable	6,300
	Cash		6,300
	Being warranty amount paid
Sep. 30	Lawsuit Expense	90,000
	Lawsuit Payable		90,000
	Being lawsuit expense probable
Dec 31	Warranty Expense (3% of $520,000)	15,600
	Warranty Payable		15,600
	Being warranty accrued recorded

Computation of warranty payable balance

Date	Particular	Amount	Date	Particular	Amount
July 28	To Cash	$   6,300	June 30	By Warranty Expense	$ 11,700
Dec 31	To Balance c/d	$ 21,000	Dec 31	By Warranty Expense	15,600
		$ 27,300			$ 27,300