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Please help Garage Hardware Ltd. provides a product warranty for defects on a major line (Line B) of items sold since the beginning of 20X5.
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Garage Hardware Ltd. provides a product warranty for defects on a major line (Line B) of items sold since the beginning of 20X5. Line B carries a three-year warranty for parts and service. The warranty cannot be purchased separately, and is intended to provide assurance to customers that the products will operate in accordance with the specifications provided. Garage performs its own warranty work for Line B. On the basis of experience, Garage estimates that warranty work costs 3 % of sales for parts and 7% for labour and overhead for the entire three years although it is difficult to assess in which year the costs will likely be incurred. 20X7 20X6 20X5 800 600 Sales in units, Line B $750 $700 Sales price per unit, Line B Actual warranty costs incurred, Line B: $9,600 $12,000 $3,000 Parts 22,000 30,000 7,000 Labour and overhead Required: 1) Prepare journal entries for annual sales, expense, and warranty transactions for 20X5 to 20X7 inclusive. Because of uncertainty of estimates no discounting is to be applied. 2) How much is warranty expense in each year from 20X5 to 20X7? 3) What is the balance in the provision for warranty at December 31, 20X5 through December 31, 20X7? 4) What warranty work is left to do at the end of 20X7Step by Step Solution
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