Lowe Manufacturing Co. warrants its products for one year. The estimated product warranty is 4% of sales. Assume that sales were $560,000 for January. In February, a customer received warranty repairs requiring $140 of parts and $95 of labor.

A) Journalize the adjusting entry required at January 31, the end of the first month of the current fiscal year, to record the accrued product warranty.

B) Journalize the entry to record the warranty work provided in February.

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Business

Kyle Braun

25 June, 03:45

Lowe Manufacturing Co. warrants its products for one year. The estimated product warranty is 4% of sales. Assume that sales were $560,000 for January. In February, a customer received warranty repairs requiring $140 of parts and $95 of labor.

A) Journalize the adjusting entry required at January 31, the end of the first month of the current fiscal year, to record the accrued product warranty.

B) Journalize the entry to record the warranty work provided in February.

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Answers (1)

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Valery · Answer 1

January 31

Warranty Expense $22,400 (debit)

Warranty Provision $22,400 (credit)

February

Warranty Provision $235 (debit)

Materials $140 (credit)

Salaries Payable $95 (credit)

Explanation:

There is no option on the customer to take the warranty or not. Therefore this type of warranty is known as an Assurance type warranty and is accounted for in terms of IAS 37.

January 31

Warranty Expense $22,400 (debit)

Warranty Provision $22,400 (credit)

Warranty = $560,000 * 4% = $22,400

February

Warranty Provision $235 (debit)

Materials $140 (credit)

Salaries Payable $95 (credit)

When Warranty Claim is subsequently received