On November 1 2015 Shallet Cobegan operations by purchasing

On November 1, 2015, Shallet Co.began operations by purchasing generators for uses the perpetual inventory method. The grinders have a 60-day warranty company to replace any nonworking generator. When a generator is returned, the company discards Shallet that requires the it and 9generator is $500, and its retail selling price is $1,200 in both 2015 and 2016. The manufacturer has advised the company to expect warranty costs to equal 5% of dollar sales. The following mails a new one from Merchandise Inventory to the customer. The company\'s cost per new transactions and events occurred. 2015 Nov. 16 Sold 100 generators for $1,200 each. You need to multiply before making journal entry 30 Recognized warranty expense related to November sales with an adjusting entry. 12 Replaced 10 generators that were returned under the warranty. 18 Sold 400 generators for $1,200 each. You need to multiply before making journal entry 28 Replaced 10 generators that were returned under the warranty. 31 Recognized warranty expense related to December sales with an adjusting entry Dec. 2016 Jan. 7 Sold 80 generators for $1,200 each. You need to multiply before making journal entry. 21 Replaced 2 generators that were returned under the warranty. 31 Recognized warranty expense related to January sales with an adjusting entry. Required 1. Prepare journal entries to record the 2015 and 2016 entries for estimated warranty expense and for any items returned under the warranty 2. How much warranty expense is reported for November 2015 and for December 2015? 3. How much warranty expense is reported for January 2016? 4. What is the balance of the Estimated Warranty Liability account as of December 31,2015? 5. What is the balance of the Estimated Warranty Liability account as of January 31, 2016? Dates supplied explanations required. Use page 25 to record journal entries and page 26 to answer requirements 2-5

Solution

Prepare journal entries to record these transactions and adjustments for 2015 Date Account Title & Explaination Debit Credit 16-Nov-15 Cash (100 X $1200) 120000 Sale 120000 Cost of Good Sold 50000 Inventory 50000 30-Nov-15 Warranty Expenses (120000*5%) 6000 Warranty Liability 6000 12-Dec-15 Warranty Liability (10*500) 5000 Inventory 5000 18-Dec-15 Cash (400*1200) 480000 Sale 480000 Cost of Good Sold (400*500) 200000 Inventory 200000 28-Dec-15 Warranty Liability (10*500) 5000 Inventory 5000 31-Dec-15 Warranty Expenses (480000*5%) 24000 Warranty Liability 24000 1.2 Prepare journal entries to record these transactions and adjustments for 2016. Date Account Title & Explaination Debit Credit 2016 7-Jan-16 Cash (80X$1200) 96000 Sale 96000 Cost of Good Sold (80*500) 40000 Inventory 40000 21-Jan-16 Warranty Liability (2*500) 1000 Inventory 1000 31-Jan-16 Warranty Expenses (96000*5%) 4800 Warranty Liability 4800 2)Warranty Expenses is reported for 30November 2015 = 120000*5% = $6000 Warranty Expenses is reported for 31 December 2015 = 480000*5% = $24000 3) warranty expense is reported for 31January 2016 = 96000*5% = $4800 4)Estimated Warranty Liability account as of December 31, 2015 = Waranty Liability created on Nov 30 - Warranty Liabilty used in Dec 9 - Warranty Liabilty used in Dec 29 + Waranty Liability created on Dec 31 Estimated Warranty Liability account as of December 31, 2015 = $6000-$5000 - $5000 + $24000 Estimated Warranty Liability account as of December 31, 2015 = $20000 Estimated Warranty Liability account as of January 31, 2016 = Estimated Warranty Liability account as of December 31, 2015 + Warranty Liabity created in jan - Warranty Liability used in jan Estimated Warranty Liability account as of January 31, 2016 = $20000-$1000 +$4800 Estimated Warranty Liability account as of January 31, 2016 =$23800