4TI - Horngren'S Financial And Managerial Accounting

Question

: O’Conner guarantees its vacuums for four years. Prior experience indicates that warranty costs will be approximately 6% of sales. Assume that O’Conner made sales totaling $200,000 during 2018. Record the warranty expense for the year.

Step-by-Step Solution

Answer

The warranty expenses payable will be credited with $12,000

warranty Expense

$\begin{array}{c}\text{6\%\hspace{0.17em}warrenty\hspace{0.17em}expence\hspace{0.17em}}=\text{rate}\times \text{Sales}\\ \text{=\hspace{0.17em}}\frac{\text{6}}{\text{100}}\text{×\hspace{0.17em}\$200,000}\\ \text{=\$12,000}\end{array}$

Journal Entries

Date	Particulars	Debit	Credit
Year 2018	Warranty Expense (6% 0f $200000)	$12,000
	Estimated warranty payable		$12,000
	To accrue warranty payable.