Question
Pharoah 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
Pharoah 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, Pharoah estimates that 2.00% of the units sold will become defective in the warranty period, and that the average cost of replacing or repairing a defective unit is $18. In November, Pharoah sold 38,000 units and 490 defective units were returned. In December, Pharoah sold 45,000 units and 720 defective units were returned. The actual cost of replacing the defective units was $21,780.
Prepare a journal entry to accrue for the estimated warranty costs for the November and December sales at December 31, 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Date | Account Titles and Explanation | Debit | Credit |
---|---|---|---|
Dec. 31 | enter an account title to accrue warranty expense on December 31 Warranty LiabilityNo EntryRepair Parts Inventory, Salaries Payable, Cash, etcAccounts ReceivableWarranty Expense | enter a debit amount | enter a credit amount |
enter an account title to accrue warranty expense on December 31 Warranty LiabilityRepair Parts Inventory, Salaries Payable, Cash, etcAccounts ReceivableWarranty ExpenseNo Entry | enter a debit amount | enter a credit amount | |
(To accrue warranty expense.) |
List of Accounts
Prepare one summary journal entry at December 31, 2021, to record the cost of replacing the defective game consoles returned during November and December. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Date | Account Titles and Explanation | Debit | Credit |
---|---|---|---|
Dec. 31 | enter an account title to record honouring warranty contracts on December 31 Accounts ReceivableRepair Parts Inventory, Salaries Payable, Cash, etcNo EntryWarranty LiabilityWarranty Expense | enter a debit amount | enter a credit amount |
enter an account title to record honouring warranty contracts on December 31 Warranty LiabilityRepair Parts Inventory, Salaries Payable, Cash, etcWarranty ExpenseAccounts ReceivableNo Entry | enter a debit amount | enter a credit amount | |
(To record honouring warranty contracts.) |
List of Accounts
What amounts will be included in Pharoah's 2021 income statement and balance sheet at December 31, 2021, with regard to the warranty?
Income statement (Operating expenses) | $enter a dollar amount | |
---|---|---|
Balance sheet (Current Liabilities) | $enter a dollar amount |
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