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Use the following information for the Exercises below. (Algo)
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Hitzu Company sold a copier (that costs $5,500) for $11,000 cash with a two-year parts warranty to a customer on August 16 of Year 1. Hitzu expects warranty costs to be 5% of dollar sales. It records warranty expense with an adjusting entry on December 31. On January 5 of Year 2, the copier requires on-site repairs that are completed the same day. The repairs cost $93 for materials taken from the parts inventory. These are the only repairs required in Year 2 for this copier.
Exercise 11-12 (Algo) Warranty expense and liability computations and entries LO P4
- How much warranty expense does the company report for this copier in Year 1?
- How much is the estimated warranty liability for this copier as of December 31 of Year 1?
- How much is the estimated warranty liability for this copier as of December 31 of Year 2?
- Prepare journal entries to record (a) the copiers sale; (b) the adjustment to recognize the warranty expense on December 31 of Year 1; and (c) the repairs that occur on January 5 of Year 2.
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