Question
Oriole Company began selling game consoles on November 1, 2021. The company offers a 75-day warranty for defective merchandise. Based on past experience with other
Oriole Company began selling game consoles on November 1, 2021. The company offers a 75-day warranty for defective merchandise. Based on past experience with other similar products, Oriole estimates that 2.30% of the units sold will become defective in the warranty period, and that the average cost of replacing or repairing a defective unit is $16. In November, Oriole sold 40,000 units and 500 defective units were returned. In December, Oriole sold 40,000 units and 750 defective units were returned. The actual cost of replacing the defective units was $20,000.
Prepare a journal entry to accrue for the estimated warranty costs for the November and December sales at December 31, 2021.
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