Merritt Equipment Company sells computers for $1,220 each and also gives each cu
ID: 2409332 • Letter: M
Question
Merritt Equipment Company sells computers for $1,220 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 950 computers on credit. Based on past experience, the company has estimated the per unit 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 $10,400 for parts and $15,600 for labor Under the expense warranty approach, give the entries to reflect the above transactions (accrual method) for 2017 and 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually Date Account Titles and Explanation 2017 Debit Credit To record sale of computers) 2017 (To record liability against warranty costs) 2018Explanation / Answer
Date Account titles and explanation Debit Credit 2017 Accounts Receivable $1,159,000 Sales Revenue $1,159,000 2017 Warranty Expense $95,000 Warranty Liability $95,000 2018 Warranty Liability $26,000 Inventory $10,400 Cash, Inventory, Accrued Payroll $15,600