Month Units Sold Units Defective Betancourt Company sells automatic can openers

Question

Month Units Sold Units Defective Betancourt Company sells automatic can openers under a 75-day warranty for defective merchandise. Based on past experience, Betancourt estimates that 4% of the units sold will become defective during the warranty period. Management estimates that the average cost of replacing or repairing a defective unit is $25. The units sold and units defective that occurred during the last 2 months of 2017 are as follows.

Monrh                                            Units Sold                       Units Defective         

Prepare the journal entries to record the estimated liability for warranties and the costs incurred in honoring 1,007 warranty claims. (Assume actual costs of $25,175.)

Determine the estimated warranty liability at December 31 for the units sold in November and December

Give the entry to record the honoring of 500 warranty contracts in January at an average cost of $25

please not only give the correct answer but also explain how it was obtained Thanks

Explanation / Answer

Estimated warranty for November = (4% * 30,200) * $25 = 30,200 Estimated warranty for December = (4% * 32,200) * $20 = 32,200) Total estimated warranty = 30,200+32,200 = 62,400 Journal entry for estimated warranty is Warranty expense Dr. 62,400 Warranty liability Cr. 62,400 Journal entry for recording 1007 warranty claims: Warranty Liability Dr. 25175 (1007*25) Cash Cr 25175

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