In 2018, TWIT began to manufacture and sell a new line of hockey equipment to various NHL
Question:
In 2018, TWIT began to manufacture and sell a new line of hockey equipment to various NHL teams. These carry a two-year warranty against defects. All warranty related work was outsourced to iFix Company, a local repair firm. They bill TWIT for all their work undertaken and are paid 70% in the same year and the balance in the following year. Based upon TWIT’s experience with similar products, the estimated warranty costs related to the dollar sales of any given year were as follows:
For First year of warranty 2%
For Second year of warranty 5%
Sales and actual warranty expenditures for 2018 and 2019 are presented below:
2018 2019
Sales $900,000 $1,200,000
Warranty expenditures invoiced by iFix 30,000 60,000
The journal entry to record warranty expense accrued at the point-of-sales in 2018 would be:
a. DR Warranty Expenses ............ $63,000; CR Cash ............ $63,000
b. DR Warranty Expenses ............ $18,000; CR Estimated Warranty Liabilities ............ $18,000
c. DR Warranty Expenses ............ $30,000; CR Estimated Warranty Liabilities ............ $30,000
d. DR Estimated Warranty Liabilities ............ $30,000; CR Cash ............ $30,000
e. None of the above.
Expert Answer:
The journal entry to record warranty expense accrued at the pointofsale in 2018 should reflec... View the full answer
