Question
Red Company sells a machine for 685 with a 12-month warranty agreement that requires the company to replace all defective parts and to provide the
Red Company sells a machine for 685 with a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. The company sells 710 machines in 2019 (warranty expense is incurred quarter in 2019 and three quarters in 2020). As a result of product testing, the company estimates that the total warranty cost is 32 per machine (15 parts and 17 labor).
Instructions
Assuming that actual warranty costs are incurred exactly as estimated, what journal entries would be made relative to the following facts?
1. Sale of machinery and the related warranty costs in 2019.
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