Madison Co sells 13000 scanners at a price of 25000 each The

Madison Co. sells 13,000 scanners at a price of $250.00 each. The selling price includes a warranty (1 year) on parts. Madison expects that 4.5% of the scanners will be defective and that warranty repair costs will be $56 per unit. Complete the following: a. Journalize the sale (assume a 7.75% sales tax rate). b. Estimate, and then journalize the warranty liability.

Solution

Journal Entries Accounts title and explanation Debit $ Credit $ Accounts receivable Account Dr. 3501875     Sales revenue (13000*250) 3250000     Sales tax payable (3250,000*7.75%) 251875 Warranty expense Account Dr. 874250     Warranty expense liability Account 874250 Note: Total Warranty liability: Defective (3250000*4.50%) 146250 Repair cost (13000*56) 728000 Total Warranty liability 874250