Consumer Corp. sells dishwashers and washing machines that come with a two$-$year unlimited warranty on parts and labour for repairs. The warranty is intended to assure customers that the appliances will operate as advertised. The warranty is expected to cost $3\%$ of sales in the first year and $5\%$ of sales in the second year, for a total of $8\%.$ The provision for warranty has a credit balance of $$163,000$ at the beginning of $20$X$5.$ The following events and decisions relate to the warranty:

$20$X$5$ Sales revenue of $$4,850,000$ was generated from products covered by the warranty. Both the sale and the warranty provision must be recorded.

$20$X$5$ Warranty work consumed parts inventory with a cost of $$8,700,$ and labour of $$37,000.$

$20$X$6$ Sales revenue from products covered by the warranty were $$6,850,000.$ Both the sale and the warranty provision must be recorded.

$20$X$6$ Sales revenue of $$6,850,000$ was generated from products covered by the warranty. Warranty work consumed parts inventory with a cost of $$137,000,$ and labour of $$297,000.$

$20$X$6$ Year$-$end review indicated that based on new information the percentage used as an estimate for warranty work in $20$X$5$ and $20$X$6$ should have been a total of $10\%$ of sales, rather than $8\%.$

$20$X$6$ Because of a specific prevalent defect to a seal discovered during repairs in $20$X$6,$ the company announced that it would cover repairs for this specific defect for a third year for all sales of product made in $20$X$5$ and $20$X$6.$ The cost of this work was estimated to be $1\%$ of sales. This is in excess of the percentage increase described above. Products were re$-$engineered to eliminate the defect starting in $20$X$7.$

 

 

Required:

$1.$ Prepare journal entries for the events listed above. Because of uncertainty of estimates, no discounting is to be applied. Assume all sales are in cash. $($If no entry is required for a transaction$/$event$,$ select $"$No journal entry required" in the first account field.$)$

$2.$ Calculate the balance of the provision for warranty at $31$ December $20$X$5$ and $20$X$6.$

Answer rating: 100% (QA)

Here are the journal entries for the events listed above 20X5 Entries 1 Sales 4850000 Provision for ... View the full answer