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Merritt Equipment Company sells computers for $1,700 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 910 computers. Based on past experience, the company has estimated the total 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 $11,200 for parts and $16,800 for labor.
Requied:
a. Under the expense warranty approach, give the entries to reflect the above transactions (accrual method) for 2017 and 2018.

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Answer:

Explanation:

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Answer:

              Debit                Credit

Cash a/c $1,547,000                                      

Sales a/c                          $1,547,000

Warranty expenses         $91,000

Accrued warranty payable              $91,000

Accrued warranty payable  $28,000

Cash                                                         $28,000

Explanation:

The journal entries for 2017 and 2018 would be the following:

For sale of computers        

                  Debit                Credit

Cash a/c $1,547,000                                      

Sales a/c                          $1,547,000

Cash=$1,700*90=$1,547,000

Warranty expenses         $91,000

Accrued warranty payable              $91,000

Accrued warranty payable=(40+60)*910  

Accrued warranty payable  $28,000

Cash                                                         $28,000

Cash=$11,200+16,800=$28,000

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