Problem 10-4B Estimated product warranty liabilities (22 marks)

On November 9, 2020, Snowboat Snow Removal began to buy and sell snow blowers for $700 each.Snowboat uses the perpetual system to account for inventories.The snow blowers are covered under a warranty that requires the company to replace any non-working snow blower within 60 days. When a snow blower is returned, the company simply discards it and sends a new one from inventory to the customer.The company's cost for a new snow blower is $540.The manufacturer has advised the company to expect warranty costs to equal 20% of the total units sold.These transactions occurred in 2020 and 2021.

2020

Nov.

16

Sold 60 snowblowers each for $700.

30

Recognized warranty expense for November with adjusting entry.

Dec.

10

Replaced two snowblowers that were returned under the warranty.

20

Sold 140 snowblowers.

30

Replaced 17 snowblowers that were returned under the warranty.

31

Recognized warranty expense for December with adjusting entry.

2021

Jan.

6

Sold 50 snowblowers for cash.

20

Replaced 26 snowblowers that were returned under the warranty.

31

Recognized warranty expense for January with adjusting entry.

Required

1.How much warranty expense should be reported for November and December 2020?

2.How much warrant expense should be reported for January 2021?

3.What is the balance of the estimated warranty liability as of December 31, 2020?

4.What is the balance of the estimated warranty liability as of January 31, 2021?

5.Prepare journal entries to record the transactions and adjustments in January (ignore sales tax).