chp 8 section 6

Eds Athletics sells bicycles and other sports and athletic equipment. Sales and expected warranty claims for the year are as follows:

Item	Unit Sales	Expected Warranty Claims	Cost per Claim
		for Warranty Period
Mountain bikes	300	3 claims per 100 sold	$30
Racing bikes	120	1 claims per 20 sold	75
Snowboards	650	2 claim per 100 sold	20

Required:

1.

Prepare the entry to record warranty expense for Eds for the year.

2.

Conceptual Connection: Why does Eds have to record a liability for future warranty claims?

Chart of Accounts

CHART OF ACCOUNTS

Eds Athletics

General Ledger

	ASSETS
111	Cash
112	Petty Cash
121	Accounts Receivable
123	Allowance for Doubtful Accounts
124	Notes Receivable
125	Supplies
126	Prepaid Insurance
127	Prepaid Rent
128	Inventory
129	Interest Receivable
130	Investment
131	Land
132	Buildings
133	Equipment
134	Furniture
135	Trucks
139	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
212	Utilities Payable
213	Insurance Payable
214	Interest Payable
215	Warranty Liability
216	Income Taxes Payable
221	Excise Taxes Payable (Federal)
222	Excise Taxes Payable (State)
223	Property Taxes Payable
224	Sales Taxes Payable (State)
231	Wages Payable
233	Commissions Payable
234	Federal Income Taxes Withholding Payable
235	State Income Taxes Withholding Payable
236	Social Security Taxes Payable
237	Medicare Taxes Payable
238	Charitable Contributions Payable
239	Union Dues Payable
241	Federal Unemployment Taxes Payable
242	State Unemployment Taxes Payable
251	Unearned Sales Revenue
252	Unearned Rent Revenue
261	Bonds Payable
262	Notes Payable

	EQUITY
311	Common Stock
321	Retained Earnings
331	Dividends