ACCT 201 Principles of Financial Accounting Practice Final Exam Combined Chapters 9-12 Dr. Fred Barbee Solution to Short-Problem #1

Short Problem #1

A company sells computers with a 6-month warranty. In January, the company sold 100,000 computers at $1,750 each, and 1,500 computers were turned in for repairs during that same month. The total repairs amounted to $185,000 costs from the computer parts inventory. It is estimated that 2% of all units sold will need repairs under warranty at an estimated cost of $200 per unit. Prepare the journal entries to record (a) estimated warranty expense for January, and (b) warranty repair costs for January.

Solution:

Journal Entry to Record Estimated Warranty Expense for January

Warranty Expense	400,000
Estimated Warranty Liability (100,000 x .01 x $200)		400,000

Journal Entry to Record Warranty Repair Costs for January

Estimated Warranty Liability	185,000
Computer Parts Inventory		185,000