Question
Dunder Mifflin Paper Company began selling printers for $180,000 during 20X4. The merchandise carries a two-year unconditional warranty for parts and labour. The company uses
Dunder Mifflin Paper Company began selling printers for $180,000 during 20X4. The merchandise carries a two-year unconditional warranty for parts and labour. The company uses the cost deferral method. Dunder Mifflins past experience indicates that warranty costs will be approximately 4% of sales. During 20X4, Dunder Mifflin incurs $3,200 in parts inventory relating to the warranty. In 20X5, Dunder Mifflin sells another $316,000 worth of goods. They now believe that the provision for warranties should be 3%, and that this amount should have been used in 20X4 as well. During 20X5, Dunder Mifflin incurs $4,100 in parts inventory relating to the warranty.
Required: Prepare the journal entries required in 20X4 and 20X5.
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