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Lindy Appliance begins operations in 2021 and offers a one-year warranty on all products sold. Total appliance sales in 2021 are $1,600,000, and Lindy estimates future warranty costs in 2022 to be 2% of current sales. Actual warranty costs in 2022 are $25,000. Also in 2022, Lindy has additional sales of $2,400,000 and revises its estimate of warranty costs associated with sales in 2022 to be 1.5%.
Required:
1. Record the adjusting entry for estimated warranty costs at the end of 2021.
2. Record the summary entry for actual warranty expenditures in 2022, assuming all costs were paid in cash.
3. Record the adjusting entry for estimated warranty costs at the end of 2022.
4. What is the balance in Warranty Liability at the end of 2021 and 2022?

Respuesta :

anthougo

The Lindy Appliance will meet the requirements by recording the following journal entries:

Journal Entries:

1. December 31, 2021: Debit Warranty Expense $32,000

Credit Warranty Liability $32,000

  • To record the warranty costs for the year.

2. 2022 Debit Summary: Warranty Liability $25,000

Credit Cash $25,000

  • To record the actual warranty expenditures in 2022.

3. December 31, 2022: Debit Warranty Expense $36,000

Credit Warranty Liability $36,000

  • To record the warranty costs for the year.

4. The balance in the Warranty Liability account at the end of 2021 is $32,000, and at the end of 2022, it is $43,000.

Data and Calculations:

Warranty period for sales = 1 year

Sales Revenue in 2021 = $1,600,000

Estimated warranty costs for 2021 = $32,000 (2% of $1,600,000)

Actual warranty costs in 2022 = $25,000

Sales Revenue in 2022 = $2,400,000

Estimated warranty costs in 2022 = $36,000 (1.5% of $2,400,000)

Analysis:

1. December 31, 2021: Warranty Expense $32,000 Warranty Liability $32,000

2. 2022 Summary: Warranty Liability $25,000 Cash $25,000

3. December 31, 2022: Warranty Expense $36,000 Warranty Liability $36,000

Thus, the balance in the Warranty Liability account at the end of 2021 is $32,000, and at the end of 2022, it is $43,000 ($32,000 - $25,000 + $36,000).

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