High Fidelity Corporation sells stereos under a 2-year warranty contract that requires High Fidelity to replace defective parts and provide free labor on all repairs. During 2001, 1,050 units were sold at \($900\) each. In 2002. High Fidelity sold an additional 900 units at \($92\) 5. Based on past experience, the estimated 2-year warranty costs are \($20\) for parts and \($25\) for labor per unit. It is also estimated that 40% of the warrant)' expenditures will occur in the first year and 60% in the second year Actual warrant)' expenditures were as follows:

Instructions: 

Assuming sales occurred on the last day of the year for both 2001 and 2002. give the necessany journal entries for the years 2001 through 2003. Analyze the warranty liability account for the year ended December 31, 2003. to see if the actual repairs approximate the estimate. Should High Fidelity revise its warranty estimates?

Transcribed Image Text:

2002 Stereos sold in 2001. Stereos sold in 2002 $18,300 - 2003 $26,500 18,100