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Merritt Equipment Company sells computers for $1,200 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and

Merritt Equipment Company sells computers for $1,200 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 850 computers on credit. Based on past experience, the company has estimated the per unit 2-year warranty costs as $40 for parts and $60 for labor. (Assume sales all occur at December 31, 2017.) In 2018, Merritt incurred actual warranty costs relative to 2017 computer sales of $10,000 for parts and $15,000 for labor.

(a)

Under the expense warranty approach, give the entries to reflect the above transactions (accrual method) for 2017 and 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

2017

Warranty Expense Cash, Inventory, Accrued Payroll Accounts Receivable Warranty Liability Sales Revenue Inventory

Accounts Receivable Cash, Inventory, Accrued Payroll Warranty Expense Warranty Liability Sales Revenue Inventory

(To record sale of computers)

2017

Warranty Expense Cash, Inventory, Accrued Payroll Accounts Receivable Sales Revenue Inventory Warranty Liability

Cash, Inventory, Accrued Payroll Sales Revenue Accounts Receivable Warranty Liability Warranty Expense Inventory

(To record liability against warranty costs)

2018

Accounts Receivable Inventory Cash, Inventory, Accrued Payroll Sales Revenue Warranty Expense Warranty Liability

Sales Revenue Cash, Inventory, Accrued Payroll Warranty Expense Inventory Accounts Receivable Warranty Liability

Warranty Liability Cash, Inventory, Accrued Payroll Accounts Receivable Inventory Warranty Expense Sales Revenue

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