Question: Montague Auto Repair specializes in the repair of foreign car

Montague Auto Repair specializes in the repair of foreign car transmissions. To encourage business, Montague offers a six-month warranty on all repairs. The following data are available for 2011:
Transmissions repaired, 2011 ................4,500
Expected frequency of warranty claims ...........0.09 per repair
Actual warranty claims, 2011 ..............$110,000
Estimated warranty liability, 1/1/11 ............$ 25,000
Estimated cost of each warranty claim .............$ 250
Assume that warranty claims are paid in cash.

Required:
1. Compute the warranty expense for 2011.
2. Prepare the entry to record the payment of the 2011 warranty claims.
3. What is the December 31, 2011, balance in the warranty liability account? Why has the balance in the warranty liability account changed from January 1, 2011?

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  • CreatedSeptember 22, 2015
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