Warranties}

Montague Auto Repair specializes in the repair of foreign car transmissions. To encourage business, Montague offers a six-month warranty on all repairs. The following data are available

Assume that warranty claims are paid in cash.

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1. Compute the warranty expense for 2018 .

2. Prepare the entry to record the payment of the 2018 warranty claims.

3. CONCEPTUAL CONNECTION What is the December 31, 2018, balance in the warranty liability account? Why has the balance in the warranty liability account changed from January 1,2018 ?

Note: Round all answers to two decimal places.

Problem

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Transmissions repaired, 2018 Expected frequency of warranty claims Actual warranty claims, 2018 Estimated warranty liability, 1/1/18 Estimated cost of each warranty claim 4,500 0.09 per repair $110,000 $ 25.000 250