Specialist Mobile Phones Ltd provides a two-year warranty on the sale of all its products. During the year ended 30 June 2020 the company earned sales revenue of $650,000 and it had a credit opening balance of $14,900 in the warranty provision account. During the year the company’s service department repaired products for customers under warranty at a cost of $16,200, of which $10,100 related to labor costs and the remainder was for spare parts. Based on past experience, the company estimates that 3% of its annual sales revenue will be returned by customers for warranty repairs.

Narrations are not required for the journal entries.

Required:

a) Prepare the journal entry to record the warranty claims made by customers during the year 

b) Prepare the journal entry to record the accrued product warranty expense at 30 June 2020

c) Explain why the provision for warranty is considered a liability in Specialist Mobile Phones’ Statement of Financial Position 

Answer rating: 100% (QA)

a Journal entry for warranty claims Date Particulars Debit Credit Jun 30 Provision for Warranties Dr ... View the full answer