On November 9, 2014, Ryniak Co. began to buy and resell snowblowers for $700 each. Ryniak uses the perpetual system to account for inventories. The snowblowers are covered under a warranty that requires the company to replace any non-working snowblower within 60 days. When a snowblower is returned, the company simply discards it and sends a new one from inventory to the customer. The company’s cost for a new snowblower is $540. The manufacturer has advised the company to expect warranty costs to equal 20% of the total units sold. These transactions occurred in 2014 and 2015.
Required 1. How much warranty expense should be reported for November and December 2014? 2. How much warranty expense should be reported for January 2015? 3. What is the balance of the estimated warranty liability as of December 31, 2014? 4. What is the balance of the estimated warranty liability as of January 31, 2015? 5. Prepare journal entries to record the transactions and adjustments (ignore salestaxes).