Merritt Equipment Company sells computers for $1,500 each and also gives each cu
ID: 2340428 • Letter: M
Question
Merritt Equipment Company sells computers for $1,500 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 1,200 computers. Based on past experience, the company has estimated the total 2-year warranty costs as $40 for parts and $60 for labor per unit. In 2018, Merritt incurred actual warranty costs relative to 2017 computer sales of $16,000 for parts and $24,000 for labor.
a)Prepare entries to record the sale of the computers and the related warranty costs, assuming that the accrual method is used for 2017 and 2018.
Explanation / Answer
Date Particulars Dr. Cr. 2017 Accounts Receivable 1800000 To Sales 1800000 2017 Warranty Expense 120000 To Warranty Liability 120000 2018 Warranty Liability 40000 To Inventory 16000 To Accrued Payroll 24000