Question
Woodmier Lawn Products introduced a new line of commercial sprinklers in 2017 that carry a one-year warranty against manufacturers defects. Because this was the first
Woodmier Lawn Products introduced a new line of commercial sprinklers in 2017 that carry a one-year warranty against manufacturers defects. Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the industry. Based on that experience, warranty costs were expected to approximate 3% of sales. Sales of the sprinklers in 2017 were $3,450,000. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product:
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|
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Accrued liability and expense |
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Warranty expense (3% $3,450,000) | 103,500 |
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Estimated warranty liability |
| 103,500 |
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Actual expenditures (summary entry) |
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Estimated warranty liability | 47,610 |
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Cash, wages payable, parts and supplies, etc. |
| 47,610 |
In late 2018, the company's claims experience was evaluated and it was determined that claims were far more than expected4% of sales rather than 3%. Required: 1. Assuming sales of the sprinklers in 2018 were $4,550,000 and warranty expenditures in 2018 totaled $116,500, prepare any journal entries related to the warranty. 2. Assuming sales of the sprinklers were discontinued after 2017, prepare any journal entries in 2018 related to the warranty.
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