Problem 156 (Part Level Submission)

Merritt Equipment Company sells computers for $1,360 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 860 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.

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 (To record sale of computers) 2017 2i F (To record liability against warranty costs) 2018