Garage Hardware Ltd. provides a product warranty for defects on a major line (Line B) of...
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Garage Hardware Ltd. provides a product warranty for defects on a major line (Line B) of items sold since the beginning of 20X5. Line B carries a three-year warranty for parts and service. The warranty cannot be purchased separately, and is intended to provide assurance to customers that the products will operate in accordance with the specifications provided. Garage performs its own warranty work for Line B. On the basis of experience, Garage estimates that warranty work costs 3% of sales for parts and 7% for labour and overhead for the entire three years although it is difficult to assess in which year the costs will likely be incurred. Sales in units, Line B Sales price per unit, Line B Actual warranty costs incurred, Line B: Parts 20X5 600 $700 $3,000 7,000 20X6 800 $750 $9,600 20X7 22,000 0 $12,000 30,000 Labour and overhead Required: 1) Prepare journal entries for annual sales, expense, and warranty transactions for 20X5 to 20x7 inclusive. Because of uncertainty of estimates no discounting is to be applied. 2) How much is warranty expense in each year from 20X5 to 20X7? 3) What is the balance in the provision for warranty at December 31, 20X5 through December 31, 20X7? 4) What warranty work is left to do at the end of 20X7? Garage Hardware Ltd. provides a product warranty for defects on a major line (Line B) of items sold since the beginning of 20X5. Line B carries a three-year warranty for parts and service. The warranty cannot be purchased separately, and is intended to provide assurance to customers that the products will operate in accordance with the specifications provided. Garage performs its own warranty work for Line B. On the basis of experience, Garage estimates that warranty work costs 3% of sales for parts and 7% for labour and overhead for the entire three years although it is difficult to assess in which year the costs will likely be incurred. Sales in units, Line B Sales price per unit, Line B Actual warranty costs incurred, Line B: Parts 20X5 600 $700 $3,000 7,000 20X6 800 $750 $9,600 20X7 22,000 0 $12,000 30,000 Labour and overhead Required: 1) Prepare journal entries for annual sales, expense, and warranty transactions for 20X5 to 20x7 inclusive. Because of uncertainty of estimates no discounting is to be applied. 2) How much is warranty expense in each year from 20X5 to 20X7? 3) What is the balance in the provision for warranty at December 31, 20X5 through December 31, 20X7? 4) What warranty work is left to do at the end of 20X7?
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