Question
Benson Builder Pty Ltd provides a 12-month warranty on building work performed by the entity. On 1 January 2016, there was a credit balance of
Benson Builder Pty Ltd provides a 12-month warranty on building work performed by the entity. On 1 January 2016, there was a credit balance of $ 74,600 in its warranty provision account. During the year ended 31 December 2016, Benson Builder Pty Ltd incurred $ 79,500 servicing warranty claims. All of the warranty costs were in the form of labour costs. During the year ended 31 December 2016, Benson Builder Pty Ltds revenue from building contracts was $ 6,560,000. Warranty liabilities are estimated as 1% of building revenue for the previous 12 months. Required Prepare journal entries to record warranty claims during the period and end-of-period adjustments to the warranty provision account. (Hint: credit wages payable for the labour costs.)
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